Definition
A tax-exempt employee benefit that allows employees to obtain bicycles and cycling equipment through a salary sacrifice arrangement. The employer purchases or leases the equipment and provides it to the employee, who pays for it through regular pre-tax salary deductions.
UK Context
The scheme operates under a tax exemption introduced in the Finance Act 1999, supported by the Cycle to Work Alliance guidance. There is no formal price cap on the equipment value, though some scheme providers set limits. The salary sacrifice reduces the employee's taxable income, providing savings of typically 25% to 39% depending on the tax band.
Best Practices
- Partner with an established cycle to work scheme provider for administration and compliance
- Ensure salary sacrifice does not reduce the employee's pay below National Minimum Wage
- Clearly communicate the end-of-hire options to employees (ownership transfer, return, or extend)
Frequently Asked Questions
How much can employees save with the cycle to work scheme?
Savings depend on the employee's tax bracket. Basic rate taxpayers typically save around 32% (income tax plus employee NIC), while higher rate taxpayers can save around 42%. The exact saving depends on individual circumstances and NIC category.
What happens at the end of the hire period?
At the end of the hire period (typically 12 months), the employee can choose to purchase the equipment at fair market value, return it, or extend the hire. HMRC provides guidance on the fair market value percentages based on the original price.