Cycle to Work Scheme
Tax Savings & How It Works

The Cycle to Work scheme is the most popular tax-efficient employee benefit in the UK that most people only half understand. The headline is genuinely good: you can get a bike and accessories and pay for them out of your pre-tax salary, saving roughly a third to nearly half of the cost depending on your tax band. But the details around end-of-hire ownership, who can use it, and how the saving is actually generated trip up a lot of would-be cyclists. This guide breaks the whole thing down for the 2025/26 tax year.

How the Saving Is Actually Generated

The scheme works through salary sacrifice. You agree to give up a portion of your gross salary in exchange for the loan of a bike. Because that slice of salary is never paid to you as cash, it is never subject to income tax or employee National Insurance. The bike itself is provided as a tax-free benefit-in-kind, so no tax is charged on the loan either.

Your saving is therefore exactly equal to the tax and NI you would have paid on the sacrificed salary.

For 2025/26, employee National Insurance is 8% on earnings between £12,570 and £50,270, and 2% above that. Combined with income tax, this gives the typical savings below.

The exact percentage varies slightly because employers sometimes pass on part of the employer NI saving, and the final ownership payment reduces the net benefit a little. But as a rule of thumb, a basic-rate taxpayer saves around a third and a higher-rate taxpayer around 42%.

Who Qualifies

The scheme is open to employees paid through PAYE whose employer runs a Cycle to Work scheme. Beyond that there are a few conditions:

• Your salary after the sacrifice must not drop below the National Minimum Wage or National Living Wage. This is the single most common reason a lower-paid worker cannot use the full scheme.
• The bike must be used mainly for commuting or work-related journeys. HMRC sets the bar at more than 50% qualifying use, but in practice this is self-certified and not policed for ordinary use.
• You generally need to commit to a hire period, typically 12 to 18 months, during which the salary sacrifice runs.

Crucially, the self-employed cannot use the salary-sacrifice scheme because there is no employment salary to sacrifice. If you are a sole trader, you instead look at claiming the bike through your business accounts. If you run your own limited company, the company can act as your employer and provide a bike under the scheme.

What Counts as Eligible Equipment

The scheme covers more than just the bike. You can include:

• The bicycle or e-bike (electrically assisted pedal cycles qualify)
• Safety equipment: helmets, lights, reflective clothing, bells, mirrors
• Locks, mudguards, pannier racks and bags, repair kits
• Cargo bikes and adapted cycles for riders with disabilities

What is not covered is anything not directly related to the bike or safety, and you cannot generally claim cycling clothing beyond high-visibility safety wear.

A Worked Example: A Higher-Rate Employee Buying a £1,500 E-Bike

Consider Tom, who earns £60,000 and is a higher-rate taxpayer. He chooses a £1,500 e-bike package over a 12-month hire period.

• The £1,500 is taken from his gross salary across 12 months, so £125 a month of gross pay is sacrificed.
• He saves 40% income tax on that £1,500 = £600.
• He saves 2% employee NI on that £1,500 = £30.
• His total tax and NI saving is £630 during the hire.
• At the end, he typically pays a small final value payment or moves to a free extended loan, costing very little.

So Tom's £1,500 e-bike effectively costs him around £870 net. A basic-rate colleague on the same package would save roughly £480 (£300 tax plus around £120 NI plus a share of employer NI), bringing their cost to around £1,020. You can see how salary sacrifice changes your take-home using our salary and income tax calculator.

The End-of-Hire Question Everyone Asks

Your three options when the hire ends

During the hire period, your employer (or the scheme provider) legally owns the bike. At the end, you have three options:

1. Pay a final transfer value to own it. HMRC publishes a valuation table showing the "fair market value" of a bike after the hire period. After 12 months a bike originally over £500 is valued at 18% of its original price, falling sharply over subsequent years.
2. Enter an extended loan period. This is what most modern schemes do. You pay a small refundable deposit (often 3% to 7%), continue using the bike for several more years at no further cost, and at the end of that period the transfer value is negligible. This is the route that delivers the headline savings.
3. Return the bike. Rare, but possible if you no longer want it.

The extended-loan approach exists precisely because paying a high fair-market value upfront would erode the tax saving. By stretching the ownership transfer out over years, the eventual purchase price drops to almost nothing.

How the Scheme Interacts With Other Tax Rules

Salary sacrifice has knock-on effects worth understanding:

• Pension contributions. If your workplace pension is a percentage of gross salary, sacrificing salary slightly reduces the pensionable amount unless your employer bases pension on pre-sacrifice pay.
• Tax thresholds. Reducing your gross salary can occasionally nudge you below a threshold in a helpful way. Someone earning just over £50,270 who sacrifices enough salary could bring a sliver of income out of the 40% band, though the effect is usually marginal over a single bike's value.
• Student loan repayments. These are calculated on income after salary sacrifice, so a small reduction in repayments can occur during the hire period.
• Statutory payments and benefits. A lower gross salary can in theory affect statutory maternity or sick pay and mortgage affordability, since these look at gross pay. Over a 12-month bike hire the impact is usually negligible.

The scheme does not interact with the income tax bands in the way an allowance does, but it does sit alongside them, and understanding where the income tax thresholds fall helps you judge the real value of the relief at your income level.

Self-Employed? Here Is Your Alternative

If you are a sole trader, you cannot use Cycle to Work, but you are not shut out of tax relief on a bike used for your business. Two routes exist:

• Capital allowances or expense claim. A bike bought for business use can be claimed as a capital allowance, potentially within the Annual Investment Allowance, giving you relief at your marginal rate on the business-use proportion.
• Business mileage. HMRC's approved mileage rate for bicycles is 20p per mile, which you can claim for journeys made for business purposes.

You cannot claim both the bike's cost and the mileage allowance for the same bike, so you choose the method that suits you. The mileage route is simpler for occasional business cycling; the capital allowance route suits a more expensive bike used heavily for work. Under Making Tax Digital, which begins for sole traders earning over £50,000 from April 2026, these business expenses are recorded in your digital records and feed into your quarterly updates. TapTax categorises bike-related business spending automatically and applies the relief correctly.