Cycle To Work Scheme

In 2005, the government launched the Cycle to Work Scheme, which enables employees to buy VAT and tax-free bicycles and equipment for commuting.

The scheme works as a salary-sacrifice scheme. The business buys the bicycle on behalf of the employee, who then repays the cost of the bike via a monthly deduction from their pay packet (usually over 18 months). As the payment comes off before tax and national insurance contributions are deducted, the employee makes a saving equivalent to the combined value of their tax and NIC contributions for that sum. If their employer is registered for VAT, this can also be reclaimed from the cost of the bicycle. At the end of the loan period, the employee has the option to purchase the bike for the "fair market value" via a final payment.

Typically, this all amounts to a saving of 30-50% off the cost of a bicycle for the employee.

Who is eligible?

  • Employers of all types of business can sign up to the scheme to allow their employees to benefit, although only VAT-registered businesses will be able to take advantage of the VAT savings.
  • Employees must be intending to use their bicycle and/or equipment primarily for commuting to/from work or between workplaces.
  • Employees who do not receive PAYE salary or who are paid a low wage (when deducting the monthly salary sacrifice would cause their pay to fall below the national minimum wage) may not be able to set up a salary sacrifice arrangement. Cases would need to be looked at individually.

What exactly can you buy?

  • Any bicycle that is to be used for commuting purposes. This can include electric bicycles, tricycles, folding bicycles – anything that is not classed as a motor vehicle.
  • Technically there is no limit on the value of the bicycle and equipment that can be purchased under the scheme, although in practise most employers impose an upper limit of £1000 (due to consumer credit license rules) and may impose a lower limit in order to make the administration worthwhile.
  • You can also buy other essential cycling equipment under the scheme, including helmets, locks, panniers, bicycle racks, tools and clothing.

How do we go about setting up a Cycle to Work scheme?

Employers who would like to take part in the Cycle to Work Scheme can either:

  • Organise a scheme themselves. This is great as it means the scheme can be tailored to the needs of the company/workforce and you do not need to pay an external company, but it does require knowledge of the relevant tax and legal issues.
  • Sign up with a third-party operator to provide and administer the scheme. There are a number of Cycle to Work Scheme providers now operating in the UK – see the links on the right for more info.