Tax Partner Milsted Langdon
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Speeding through the streets on a bicycle

No limits on cycle to work scheme


Simon Denton comments on the biggest shake-up the cycle to work scheme has seen since its inception, as the government lifts the cap on the value of bicycles which can be provided.

23rd Sep 2019
Tax Partner Milsted Langdon
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Cycling has become hugely popular in recent years, with sporting success, environmental issues and technological advancements all driving the adoption of the bicycle as a vehicle for the daily commute.

While cycling can be a polarising topic, when you examine the positive impact it has made on other European cities the government’s latest initiative to extend its cycle to work scheme makes sense in many ways.


The cycle to work scheme operates by enabling the employee to make payments from gross earnings for the provision of a bicycle with which they can use to commute to work.

The schemes are most often provided through a third party and work as follows:

The employee enters a hire agreement for 12 months where a monthly payment equal to 1/12 of the price of the bike is agreed. This is paid by way of salary sacrifice, so the employee saves income tax and national insurance. The employer also saves employer’s NIC.

After the final payment period, the employee can do one of three things:

  1. Return the bike to the scheme provider.
  2. Buy the bike outright for its market value, typically 18%-25% of its original price. The lower percentage applies if the bike’s original value was £500 or less.
  3. Make a one-off payment of between 3% and 7% (again depending upon the original price) of the original value to extend the hire period by another 36 months. At the end of this period, they can buy the bike for a price of between 3% and 7% of its original cost.

Unsurprisingly, 94% of people within a cycle to work scheme take option 3.

The scheme normally operates by the employer buying a voucher from the scheme provider which can be used by the employer in participating retailers. The deductions from the employee’s salary are then used to reimburse the employer for this initial outlay.

Tax savings

The monthly hire payment is made from gross pay and has the following impact:

A bike worth £1,000 will cost a basic rate taxpayer £820, a higher rate taxpayer £720 and an additional rate taxpayer £670. Larger savings will be made by employees whose taxable income is between £50,000 and £60,000 and who receive child benefit, as well as employees whose taxable income is between £100,000 and £125,000. Sadly, the scheme is not available for the self-employed.

The scheme is open to bikes for “active travel”, so if you are a lycra-clad ironman then the scheme cannot be used to get you a super-aero disc wheeled triathlon bike that is only used when you race six times a year.

The scheme does, however, apply to cycle safety equipment, so helmets, lights and other accessories can be bought on the same terms.

As the scheme is for “active travel”, there is no reason why an employee couldn’t use the scheme to hire two bikes, one for each end of a train journey commute, for example.

The scheme is also available for people who need Electronically Assisted Pedal Cycles, bikes with adaptations or non-standard cycles such as handcycles or tricycles.

Recent changes

This year, the cycle to work scheme has had the biggest shake-up since the scheme began, with the removal of the £1,000 cap on tax-free cycle purchases.

Up until now, most employers have imposed a £1,000 limit of the scheme because, if it is exceeded, a consumer credit license is needed. Unless the employer already holds one, they have been understandably reticent to obtain such a licence in order to operate this scheme. This has meant that e-bikes have been beyond the reach of the scheme, as the vast majority of them cost more than £1,000.

In their updated guidance, the government has broadened the appeal of the scheme by announcing that FCA authorised third party providers are able to run the scheme so the employer will no longer need to be licensed themselves.


My own firm operates a cycle to work scheme and has seen a decent take-up among staff. The scheme operates smoothly and, in a sometimes challenging employment market, it presents an opportunity to stand out from other employers.

From a user’s perspective and as a keen MAMIL (middle-aged man in lycra) myself, I would have no hesitation in recommending the scheme to my clients.

Replies (2)

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By Wanderer
23rd Sep 2019 16:46

This is actually nothing new. All that has happened is that the current guidance confirms what some providers have been doing for several years.

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By MartinAccountant
26th Sep 2019 10:35

At my previous job I was considering joining the scheme but then I've read the deails of it and did the math. Result? I just bought a bike with my after tax money. Why? Because I think that the prospect of paying for somthing (even with the pre-tax money) and not owning it is ridiculous.

If you want to buy the bike after 12m of use you have to pay 25% of its value which basically wipes out all of your tax savings. We would see more people cycle to work if the scheme participants could simply become owners of their bikes after 12m.

I am really surprised anyone is signing up for it...

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