The Cycle to Work scheme is a great way for UK cyclists to save at least 32 per cent off the cost of a bike and cycling equipment.
It’s been used by more than 1.6 million commuters working for 40,000 different employers since it was introduced by the government in 1999 to “promote healthier journeys to work and reduce environmental pollution”.
Let’s have a look at how it works, whether you’re eligible and how you can buy a tax-free bike to cycle to work.
How does the Cycle to Work scheme work?
In essence, your employer buys a bike for you to ride to work and you ‘hire’ it through salary sacrifice (which is where you save by not paying tax and National Insurance contributions on the monthly fees). At the end of the ‘hire’ period, you are usually offered the option to buy the bike from your employer.
In other words, your salary sacrifice is made from your gross salary, not your net salary.
Because it was set up to promote work journeys rather than cycling in general, your employer technically remains the owner of the bike once you finish the hire period.
Everyone knows that in practice the employee is ‘buying’ the bike, but that isn’t legally the case until the salary sacrifice ends and the employer ‘sells’ the now heavily depreciated equipment to the employee.
How much money will I save on buying the bike?
That depends on your tax bracket – and of course on the value of the bike and kit you buy.
Since your monthly payments on your bike reduce your gross salary, you’ll save the tax and National Insurance contributions you’d pay on that chunk of your pay packet over the term of the Cycle to Work agreement.
So, for a basic rate taxpayer, that will amount to 32 per cent of the purchase price.
For a higher-rate taxpayer that increases to 42 per cent, with the 40 per cent tax rate currently kicking in at £50,271.
In some places, you’ll see savings of 47 per cent mentioned – but they don’t kick in until you’re earning over £150,000.
Cycle to Work calculator – typical savings
Here’s a table of typical savings for a bike purchase on a Cycle to Work scheme:
|Cost price of bike plus accessories||£1,000||£1,000|
|Rate of tax plus NICs||32%||42%|
|Net cost of bike plus accessories||£680||£580|
|Saving on cost of bike plus accessories||£320||£420|
|Net salary deduction over 12 months||£56.67||£48.33|
If you’ve got a price in mind and you know your gross salary, there are calculators online, such as that on the Green Commute Initiative’s site, that will work out indicative numbers.
It’s worth noting that reducing your gross salary might impact other benefits, such as statutory sick pay and the size of your pension pot, so it’s a good idea to check these out too. And you can’t take on payments that reduce your salary below the minimum wage.
Plus, you should insure your bike; if it’s stolen you’ll still be liable for the payments.
What happens at the end of the Cycle to Work agreement?
Technically, you’ve hired your bike from the scheme for the length of your agreement and you’ve got a few options at the end of it:
- Enter into a new agreement, paying a small deposit to rehire the bike
- Buy the bike from the scheme
- Give the bike back
A new agreement might run for different lengths of time, depending on the scheme you’ve signed up to, but will typically take your usage of the bike up to four or five years.
It’s worth noting that to buy the bike at the end of the term, under HMRC rules, you need to make a one-off payment to the scheme provider. The value of this will depend on how long you’ve been using the bike and its initial value, and uses a sliding scale.
Here’s a table of the minimum value that HMRC places on a used bike of different ages:
|Age of bike||If original price is less than £500||If original price is over £500|
|6 years or more||0%||0%|
Providers won’t usually extend the agreement beyond a specified term. Even if you keep the bike until it’s worth zero, you’ll probably have to make a nominal payment to the provider to assume ownership.
If you leave your employer while the initial Cycle to Work salary sacrifice agreement is still in force, you’ll need to pay off the balance and usually the depreciated value of the bike too, if you want to keep it. You have the option to give it back to your ex-employer too.
What schemes are available?
There are quite a few schemes out there. Some employers may have signed up with specific schemes, limiting which ones are open to you.
For smaller employers, you should be able to pick which scheme you want to use – talk to your HR department and the bike shop you want to purchase from because they too may have a preference.
Many direct sales brands such as Canyon are also signed up to one or more schemes.
Is there a price limit for the Cycle to Work scheme?
When Cycle to Work started, you were limited to a £1,000 spend, but that cap has now been removed by the government and you can spend as much as you like, subject to your employer’s and scheme provider’s limits. That means that electric bikes and pricier models are now within reach.
That change required that providers be registered with the Financial Services Authority (FSA), which the majority now are. It’s something that they have to tell you when you sign up.
Technically, you can also buy two bikes under the scheme: one to get from your home to a station or other public transport, the other to get from there to work.
Where can I buy a bike on Cycle to Work?
Many – if not most – bike shops across the UK offer bikes through a number of different Cycle to Work schemes. All of these schemes will list participating shops on their website.
If your preferred local shop is registered with multiple schemes, it’s worth checking which scheme will offer the best deal for you as well as the shop in question – that small consideration will mean a lot to any shop.
A number of consumer-direct and online retailers, including YT and Canyon, also now offer bikes through the Cycle to Work scheme. You can get a bike from niche providers too, such as Mason Cycles and Temple Cycles, as well as direct-sales ebike specialists such as VanMoof.
Do I have to ride my Cycle to Work bike to the office every day?
Relax, no one is going to be checking up on you to see how often you’ve ridden it.
Of course, the idea is that it’s used to “promote healthier journeys to work and reduce environmental pollution”, so using it as part of your commute is the obvious goal.
However, there is no scrutiny over the type of bike you buy, so you could very well choose to buy a full-suspension enduro slayer to ride to work on (and then make sure it still works okay every weekend).
Why use the Cycle to Work scheme?
The Cycle to Work scheme eases the cost of buying a bike and, as a result, offers plenty of other benefits too.
Like cycling for leisure, cycling to work also has immeasurable benefits.
You’ll save money on transport or fuel and it can help you lose weight. It’s also kinder to the environment than driving.
Providing a more affordable entry into the world of cycling, the Cycle to Work scheme could also help you reap the positive benefits cycling has on mental health.
What alternatives to the Cycle to Work scheme are there for buying a bike?
If you’re unable to use the Cycle to Work scheme, there are other options that allow you to spread the cost of a new bike over a period of time.
One option is buying a bike on finance. Many retailers offer this and you can choose to pay in monthly instalments over an agreed period of time, typically between three and 48 months.
A final alternative is to buy a used bike, although you’ll need to be sure it is fit for purpose so you are getting a good deal.