The Cycle to Work scheme lets you buy a bike and cycling equipment through your employer without paying income tax or National Insurance on the cost. A basic rate taxpayer saves around 28%; a higher rate taxpayer saves around 42%. On a £1,000 bike, that is between £280 and £420 back in your pocket compared to buying the same bike in a shop.
Here is everything you need to know about how the scheme works in 2026.
How the Cycle to Work Scheme Works
The scheme operates as a salary sacrifice arrangement. Your employer purchases a bike (or bikes and equipment) and you hire it from them over a set period — usually 12 months. The hire cost is deducted from your gross salary before income tax and National Insurance are calculated.
Because you never receive the money as salary, you pay no tax or NI on it. This is the core mechanic of all salary sacrifice arrangements. The Cycle to Work exemption is specifically authorised by HMRC under Section 244 of the Income Tax (Earnings and Pensions) Act 2003.
At the end of the hire period, you typically have the option to purchase the bike at fair market value, which HMRC accepts at a significantly reduced rate based on the bike’s age.
How Much Can You Save?
Your saving depends on your tax rate. Here is what each rate of taxpayer saves on a £1,000 bike:
| Taxpayer type | Income tax rate | NI rate | Total saving | Effective bike cost |
|---|---|---|---|---|
| Basic rate | 20% | 8% | 28% | £720 |
| Higher rate | 40% | 2% | 42% | £580 |
| Additional rate | 45% | 2% | 47% | £530 |
| Employer NI saving | — | 13.8% | 13.8% | (passed back in some schemes) |
Your employer also saves 13.8% employer NI on the sacrificed amount. Some employers use this saving to run more generous schemes or extend the range of bikes available.
Worked Example: £1,000 Bike Over 12 Months
Tom is a basic rate taxpayer earning £32,000 a year. He wants a £1,000 commuter e-bike. His employer runs a Cycle to Work scheme.
Without the scheme:
- Tom buys the bike out of his net pay
- Cost: £1,000 from money already taxed at 20% + 8% NI
- Gross equivalent cost: approximately £1,389 of pre-tax salary
Through the Cycle to Work scheme:
| Month | Gross salary sacrificed | Monthly saving (28%) |
|---|---|---|
| Each of 12 months | £83.33 | £23.33 |
| Total | £1,000 | £280 |
Tom’s net cost over the year: £720. He saves £280 — all from reducing his income tax and NI bill. His take-home pay drops by around £60/month (not £83, because he saves tax on the sacrifice).
Higher rate example: A higher rate taxpayer buying the same £1,000 bike pays an effective cost of approximately £580 — a saving of £420.
What Can You Buy on the Scheme?
The scheme covers bikes and cycling safety equipment, including:
- Road bikes, mountain bikes, hybrid bikes, e-bikes, cargo bikes
- Helmets, locks, lights, reflective clothing
- Panniers and cycle bags
- Cycling gloves and shoes
The bike must be intended mainly for qualifying journeys (commuting). Personal use alongside commuting is permitted. Motorbikes, scooters, and fully electric vehicles are not eligible.
There is no upper spend limit since 2019. If your employer’s scheme allows it, you can use the scheme to purchase a £3,000 or £5,000 e-bike — your saving scales proportionally.
No Upper Limit — What Changed in 2019?
Before 2019, the Cycle to Work scheme had a £1,000 cap. HMRC removed this limit in response to the rise of e-bikes, which often cost more than traditional cycles. Today the limit is set by your employer and their chosen scheme provider, not by HMRC. Many schemes now cover bikes up to £5,000 or above.
How to Use the Scheme
- Check if your employer participates. Ask HR. Employers typically partner with a scheme provider such as Cyclescheme, Bike2Work, Evans Cycles Work, or Halfords Cycle2Work.
- Select a bike. Browse the available retailers or the scheme’s online store. Choose your bike and any eligible accessories.
- Submit your request. You’ll usually apply via the scheme provider’s portal. Your employer approves it.
- Your payroll is adjusted. Over the hire period (typically 12 months), the hire cost is taken from your gross salary each month.
- Collect your bike. Pick it up from the retailer once approved.
- End of hire period. After 12 months, you have options to purchase or extend hire.
End of Hire — Ownership and Fair Market Value
At the end of the hire period, HMRC expects the bike to change hands at a “fair market value” to avoid a benefit-in-kind charge. HMRC has agreed typical fair market values with scheme providers:
| Original value | Value after 1 year | Value after 4 years |
|---|---|---|
| Under £500 | 25% | 12% |
| £500–£1,000 | 25% | 12% |
| Over £1,000 | 25% | 12% |
On a £1,000 bike after one year, this would be £250. Some schemes use different percentages agreed with HMRC — check your specific scheme’s terms.
In practice, many employers extend the hire agreement for a nominal period (often a further year at a peppercorn rental), after which the bike is yours with no transfer payment required.
Salary Sacrifice and Your Other Benefits
Like all salary sacrifice arrangements, Cycle to Work reduces your declared gross salary for that period. This may affect:
- Pension contributions: If calculated as a percentage of gross pay, slightly lower for the hire period
- Mortgage applications: Lenders may see reduced gross income (though for most the reduction is modest)
- State benefits: In theory, lower declared income could affect some means-tested benefits, but the monthly reduction is small
For a £1,000 bike over 12 months, gross salary is reduced by just £83/month — so the practical impact on mortgages or benefits is generally minimal.
To understand how salary sacrifice interacts with other benefits at work, read our salary sacrifice guide and employment benefits guide. For how income tax and NI interact with your pay, see our income tax guide and National Insurance guide.
Is It Worth It?
For the vast majority of employees who commute by bike — or want to start — yes. The Cycle to Work scheme is one of the simplest and most straightforward employee benefits available. The saving is real, immediate, and requires no complex financial planning.
The main conditions are:
- Your employer must run a scheme
- You must primarily intend to use the bike for commuting
- Your post-sacrifice salary must remain at or above the National Living Wage
If your employer does not yet run a scheme, it is worth asking HR. The cost to employers is zero (they actually save NI) and the administration is handled by the scheme provider.
Summary
The Cycle to Work scheme lets UK employees save 28–42% on a bike by purchasing it through salary sacrifice — no income tax or NI on the cost. There is no spending cap, e-bikes are eligible, and the scheme is available from dozens of providers. The process takes a few days to set up and your employer handles the paperwork. If you commute by bike or plan to, it is one of the easiest wins in the UK tax system.