Cycle to Work Scheme Explained

What is the Cycle to Work scheme?

The Cycle to Work scheme is a government-backed initiative introduced in 1999. Your employer buys a bicycle and safety equipment on your behalf, and you repay the cost through salary sacrifice over 12 to 48 months. Because the payments come from your gross salary (before tax and NI), you save between 32% and 42% compared to buying the bike yourself, depending on your tax band.

How it works

You choose a bike and accessories from a participating retailer. Your employer purchases the equipment and loans it to you. Over the hire period (usually 12 months), the cost is deducted from your gross salary. At the end, you can buy the bike outright at a fair market value, extend the hire, or return it.

There is no limit on the value of the bike, though schemes over £1,000 may require FCA regulation. Electric bikes (e-bikes) are eligible. The bike must be used mainly for commuting to work, though HMRC does not strictly enforce this.

Real example

Tom earns £35,000 (basic rate taxpayer) and gets a £1,200 bike through Cycle to Work. Over 12 months, he sacrifices £100 per month from his gross salary.

Tom saves £336 (28%) on the bike. A higher rate taxpayer would save 42% on the same purchase, reducing the effective cost to £696.

Who does this affect?

Any employee whose employer offers the scheme. It is available to full-time, part-time and temporary staff. Self-employed individuals cannot use it because there is no employer to operate the salary sacrifice. Your post-sacrifice salary must remain above the National Minimum Wage.

HMRC source

gov.uk/government/publications/cycle-to-work-scheme-implementation-guidance has the official implementation guidance for employers and employees.