How Cycle to Work schemes work

A Cycle to Work scheme is a tax advantaged way to obtain a bicycle from your employer. The bike and accessories are leased from your employer or a scheme provider, and the lease payments are deducted from your gross salary through salary sacrifice. The bike is often purchased from the employer at the end of the term. Because the cost comes out before Income Tax and National Insurance, the bike works out cheaper than the normal retail price. This guide explains where the saving comes from, the conditions attached, and what to check before you sign up.

What a Cycle to Work scheme is

A Cycle to Work scheme is a way for an employer to provide a bike and safety equipment for getting to work, with a tax and National Insurance advantage attached. Who has legal ownership of the bike is important to understand: in most cases your employer (or a scheme provider acting for them) owns the bike and hires it to you for a set period, rather than selling it to you on day one.

You pay for that hire through salary sacrifice — you agree to give up part of your contractual pay, and in return your employer provides the bike as a non-cash benefit. Some employers run their own scheme; many use an external provider that handles the paperwork, the bike-shop vouchers and the end-of-scheme options.

The table below summarises the situation at each stage of the process.

How salary sacrifice creates the saving

Salary sacrifice is the engine of the scheme. You agree to a lower contractual salary, and your employer uses the difference to provide a benefit. Because the sacrificed amount doesn't count as your taxable pay, you do not pay Income Tax or employee National Insurance on it.

That is why take-home pay falls by less than the price of the bike. Take a £1,200 package spread over 12 months — £100 of gross pay a month. A basic-rate taxpayer would normally lose 20% of that £100 to Income Tax and 8% to employee National Insurance, so sacrificing it costs them only £72 in take-home pay, not £100. The tax and National Insurance they would have paid is the saving.

In 2026/27, employee National Insurance is 8% on earnings between £12,570 and £50,270, and 2% above that. Income Tax is 20% in the basic-rate band, 40% in the higher-rate band and 45% above £125,140 (Scotland has different bands). Your saving rate is whatever you would have paid on that slice of pay — so it depends on your salary, where you live and the rest of your pay. The salary calculator can show how gross pay, taxable pay and National Insurance fit together, and the Cycle to work scheme calculator estimates the take-home impact for a given package.

Employer National Insurance. Your employer also saves their own National Insurance (15% in 2026/27) on the pay you give up. Some employers pass part of that saving on; many keep it to cover scheme fees. It is worth asking, because it can increase the savings even further and reduce the effective cost of the bike.

Cycle to Work is one of a small set of benefits that keep their exemption inside a salary sacrifice arrangement — alongside pension contributions, employer-provided pensions advice, workplace nurseries and certain childcare. For most other benefits the exemption is not available when salary sacrifice is used, which is part of what makes the cycle scheme worthwhile. Salary sacrifice can be used for other workplace benefits too, such as pension contributions, though the rules differ for each.

The conditions for tax relief

The saving only stands if the scheme meets the conditions set out in the legislation (section 244 ITEPA 2003). They are not onerous, but they affect how schemes are run.

Available to employees generally. The offer of cycles or equipment must be open to employees, not just a chosen few. It does not mean everyone has to take a bike, only that the option is there.

Mainly for qualifying journeys. You must use the bike mainly for commuting or travelling between workplaces. Other use — leisure rides, a family member borrowing it — is fine as long as it is not the main use. You are not expected to keep a logbook; HMRC accepts the test is met unless there is clear evidence that less than half the use is for qualifying journeys.

No ownership during the hire. You cannot own the bike while the exemption applies, and the agreement cannot build in automatic transfer of ownership at the end. That is why ownership is handled as a separate step (see what happens at the end).

Minimum wage floor. Salary sacrifice cannot drop your cash pay below the National Minimum Wage or National Living Wage. If the deductions would take you under that floor, your employer has to cap or refuse them — which can rule the scheme out for lower earners.

Examples of savings

The same bike package can cost different people different amounts, because the saving tracks the tax and National Insurance you would otherwise have paid. The figures below use a £1,200 package hired over 12 months in 2026/27. They ignore employer National Insurance sharing and any scheme fees.

The higher-rate taxpayer saves more on Income Tax but less on National Insurance, because above £50,270 the employee rate drops to 2%. Either way, the bike has cost less than £1,200, but it is not yours yet. If you then pay a fee to take ownership, that fee is added on top of the net hire cost, which is where the final figure can creep back up. The Cycle to work scheme calculator lets you put in your own salary and package to see the breakdown, including the likely ownership fee.

What bikes and equipment can be included

The scheme covers cycles for active travel and the safety equipment that goes with them.

Cycles. Standard bicycles, tricycles and cycles with more than two wheels can be included, as can electrically assisted pedal cycles (EAPCs). To count as an EAPC — and to be ridden without a licence, tax or insurance — an electric bike must have working pedals, a motor of no more than 250 watts continuous rated power, and assistance that cuts out at 15.5mph. Faster or more powerful electric bikes are treated as mopeds or motorcycles and sit outside the scheme.

Safety equipment. HMRC takes a common-sense view, but typical eligible items include cycle helmets that meet the EN 1078 standard, lights, bells and horns, reflective clothing, and child safety seats. Locks and panniers are commonly offered through schemes too. Some things do not count as safety equipment — a cycle computer, non-reflective waterproofs and cycle training are HMRC's own examples — so check what your provider includes before assuming an accessory qualifies.

Adapted cycles for disabled riders can be included where the eligibility conditions are met, which can matter for cargo bikes and non-standard frames.

Is there a maximum scheme value?

The old assumption is that Cycle to Work is capped at £1,000. For tax purposes that is not the case. Department for Transport guidance is clear that there is no limit on the value of the cycle and safety equipment that can be provided under the tax exemption.

Where the £1,000 figure comes from is consumer-credit rules, not tax. Running a hire agreement is a regulated activity, and a long-standing group authorisation covered employer-run agreements up to £1,000 without each employer needing its own Financial Conduct Authority permission. Schemes that go above that — typically provider-run or separately authorised schemes — can offer higher-value packages, which is how e-bikes and cargo bikes costing several thousand pounds are routinely financed.

So the practical limit is set by your employer's scheme, not by the tax rules. If you want a more expensive bike, the question to ask is whether your scheme is set up to handle packages above £1,000.

What happens at the end of the scheme

Because the exemption rules out automatic ownership, the agreement cannot promise you the bike at the start. When the hire period ends you usually have a few options: hand the bike back, extend the hire for a longer period, or buy it under a separate arrangement.

If you do take ownership for less than the bike is worth, the difference can be taxable as a benefit. To make this manageable, HMRC publishes a simplified valuation table that employers can use. The acceptable value depends on the bike's age and original price:

This is why timing the purchase changes the cost. If you buy a £1,200 bike outright at the end of a 12-month hire its acceptable value is 25%, or £300 — added to the net hire cost, that erodes much of the saving. This is why many providers offer an extended hire option: you pay a small refundable deposit, keep using the bike for a further period (often three more years), and ownership transfers at the end for a negligible amount. At four years old, the same bike's value is 7%, or about £84. The extended arrangement is what keeps the headline saving intact, so it is worth understanding which routes your scheme offers.

What to check before joining

A Cycle to Work scheme suits many commuters, but whether it is right for you depends on your circumstances. Before you commit, it helps to work through the practical details.

• 1The monthly hit to your take-home pay, and the total hire period, so you know what you are committing to.
• 2What the end-of-scheme options are, including any ownership fee or extended-hire arrangement.
• 3What happens if you leave your job during the hire — the outstanding balance is often taken from your final net pay.
• 4Whether your employer shares any of its National Insurance saving, and what provider fees apply.
• 5Whether the deductions keep you above the National Minimum Wage, and how the scheme treats pension contributions, statutory pay and student loan repayments.

A few situations make the scheme less useful:

• Leaving soon. If you expect to change jobs during the hire, you may have to settle the remaining cost out of net pay, which removes much of the benefit.
• Pay close to the minimum wage. The sacrifice may be capped or blocked entirely.
• Salary used for evidence. Salary sacrifice reduces your contractual cash pay, which can affect mortgage affordability assessments or visa income requirements.
• A heavily discounted bike elsewhere. A sale price in a shop can sometimes beat the net cost through a scheme, especially once an ownership fee is added.

This guide is general information about how the rules work, not personal tax advice. Tax depends on your individual circumstances and the rules can change. For anything involving leaving your job mid-scheme, minimum wage limits, statutory pay, mortgage or visa income evidence, or buying a high-value bike — or if you're simply unsure — check the guidance on GOV.UK or speak to a qualified adviser.