The Cycle to Work Scheme Explained

Hasib Howlader | 27th January 2026

The New Year’s resolution is an age-old tradition whereby, at the start of a new calendar year, people set themselves a goal (or sometimes multiple goals if they are feeling particularly greedy), be it changing an aspect of their lives or perhaps achieving an objective.

Invariably, the life-span of the average New Year’s resolution is similar to that of the common housefly and come 1^st February, all but the committed few have long given up on the goal(s) that they were so excited about just a few short weeks ago.

However, if your resolution is the commonly chosen “do more some exercise”, then we here at Howlader & Co have a solution which might just help you to see your goal through to the end of the year (or at the very least, February) – and that solution is the Cycle to Work scheme.

“What’s that?” I hear you ask! Well, quite coincidentally, the rest of this blog is dedicated to answering exactly that question, so please read on and all will be revealed.

Summary: Cycle to Work scheme

• The Cycle to Work scheme lets employers provide bikes and safety equipment to employees as a tax‑free benefit, usually via a salary sacrifice arrangement that swaps gross pay for the loan of a bike.

• To keep the tax exemption, the bike must be used mainly for qualifying journeys (commuting and work‑related travel), and at the end of the hire period the employee may be offered the chance to buy it at fair market value.

• Employers benefit from reduced employer NIC on the sacrificed salary, capital allowances on the equipment cost, and wider advantages such as a stronger benefits package, better employee wellbeing, and a lower carbon footprint.

What is the Cycle to Work scheme?

The Cycle to Work scheme allows employers to purchase and then loan cycles and cycling safety equipment to employees as a tax-free benefit, and it was introduced with the aim of promoting healthier journeys to work and reducing the environmental pollution created by more popular means of commuting such as the car.

One of the more common mechanisms that employers use to offer the Cycle to Work scheme to their employees is called a salary sacrifice arrangement. Such an arrangement involves the employee agreeing to accept a lower salary in return for the employer’s agreement to provide some form of non-cash benefit, which in this case is the loan of a cycle and or cycling safety equipment.

When we first wrote this article in 2015, most Cycle to Work schemes were effectively capped at £1,000 because employers needed a consumer credit license to provide equipment above that value. 

But in 2019, the Department for Transport updated the guidance, making it much easier for employers to offer bikes worth over £1,000 without needing a specific license. This change to the Cycle to Work fees and charges, confirmed by UK Parliament, was done to encourage the purchase of e-bikes, which are typically more expensive.

At least 50% of the bike’s use should be for qualifying journeys (commuting and work-related trips) for the tax exemption to apply, as set out in the official guidance.

Individual employers can still set their own maximum voucher limits, even though there is no longer a statutory £1,000 ceiling, to manage expectations about very high bike values.

Cycle to Work scheme: Example

From the perspective of an employee, the main advantage of the scheme is that the benefit (i.e. the use of the cycle) is tax-free, whereas the salary foregone would be subject to income tax and National Insurance contributions (NIC).

• Therefore, for the 2025-26 tax year, a basic rate taxpayer whose salary is within the main National Insurance band will typically save around 28% on the cost of the loaned equipment (20% income tax plus 8% employee NIC), while a higher rate taxpayer will usually save around 42% (40% income tax plus 2% employee NIC).
• The loan agreements are for a fixed period, at the end of which the employee can be offered the opportunity to buy the equipment at a ‘fair market value’, which varies depending on the cost of the equipment and its age.
• In the example below, an employee earns £28,000 per year and would like to buy a bicycle that costs £400. The calculations show how much money the employee is left with after buying the bicycle themselves and then by using the Cycle to Work scheme, using 2025-26 income tax and NIC rates.

In this example, the employee is approximately £112 better off by using the scheme (around 28% of the cost of the bicycle). It is important to note that if an employee uses the scheme and wants to keep the bicycle at the end of the loan period, then they may have to pay some money to their employer, which would reduce the overall savings offered by the scheme.

Cycle to Work scheme: Final thoughts

As an employer, there are a number of benefits of offering the Cycle to Work scheme to your employees. These include:

• Reduced Secondary Class 1 NICs if the loan is offered via a salary sacrifice arrangement – as of 2024, the employer NIC rate is 13.8%, as detailed by IFS with an increase to 15.0% announced from April 2025
• The ability to treat the cost of cycles and cyclists’ safety equipment (that are loaned to employees) as capital expenditure and thus claim capital allowances
• A more attractive benefits package that can be promoted to potential recruits
• Improved health and wellbeing of participating employees
• A reduction in the company’s carbon footprint

Employers can set up and run the scheme themselves, or they can use one of the many third-party providers that will process the paperwork and supply the employee with the Certificate that they use to purchase their cycle and equipment.

If you found this article, take a look at some of our other articles including:

• Tax And Accounting Treatment For Website Development Costs
• Travelling Abroad And Duty Free Limits
• Working Remotely Abroad For UK Company Tax Implications
• Things To Give Your Accountant & How to Find Them
• What Is Rent A Room Relief?

When you’re trying to find a highly experienced and qualified London accountant offering a fast, reliable, friendly service – look no further than Howlader & Co. Our experienced team – with some of the finest chartered accountants London has to offer – can help you.