How the cycle to work scheme works
The employer buys the bike and hires it to the employee. The employee gives up part of their gross salary to pay for it, so the cost comes out before tax and National Insurance.
The five steps
- The employer signs up to a scheme.
- The employee chooses a bike and equipment at a participating shop.
- The employer buys it, and hires it to the employee.
- The employee repays through salary sacrifice, usually over 12 months.
- At the end, ownership transfers, normally for a fee set against HMRC's valuation table.
What it saves
Because the money leaves gross pay, the employee saves the income tax and National Insurance they would have paid on it. A basic rate taxpayer saves around 32%, a higher rate taxpayer around 42%.
The employer saves employer National Insurance on the sacrificed amount. The scheme is normally free for the employer to run, because providers take their fee from the bike shop.
Who can use it
| Group | Eligible | Why |
|---|---|---|
| PAYE employees | Yes | Provided pay stays above National Minimum Wage after the sacrifice. |
| Directors of single-person limited companies | Yes | The company is the employer and the director is the employee. |
| Sole traders | No | No employment relationship, so there is no salary to sacrifice. |
| Low earners | Often no | Salary sacrifice cannot take pay below National Minimum Wage. |
Roughly 4.5 million self-employed people and around 2 million low earners are excluded on these grounds. Trade bodies are campaigning to change both.
The £1,000 line
Where the employer owns the goods and the total value does not exceed £1,000, no Financial Conduct Authority authorisation is needed. Above that, the arrangement is a regulated consumer hire agreement and the scheme provider must be authorised, or act as an appointed representative of a firm that is.
This is one reason to read a provider's terms rather than only their savings headline.