Setting up a Cycle To Work scheme

A practical guide for employers

Overview 📘

A Cycle to Work scheme allows employers to provide bicycles and safety equipment to employees in a tax-efficient way. When structured correctly, employees save income tax and National Insurance, and employers can offer a popular wellbeing and sustainability benefit at a relatively low cost.

This guide explains how Cycle to Work schemes work, the key tax rules, and what employers need to consider before setting one up.

What Is a Cycle to Work Scheme? 🚴‍♀️

A Cycle to Work scheme is typically set up as a salary sacrifice arrangement where:

The employer provides a bicycle and approved safety equipment
The employee agrees to give up part of their gross salary
The employee uses the bike mainly for commuting and other work-related journeys

Provided HMRC conditions are met, the benefit is exempt from income tax and NICs.

Key Requirements

To qualify for the tax exemption, all of the following must apply.

1. The scheme must be available to all employees

The offer must be open to all employees, even if:

Not everyone chooses to join
Different employees are offered different bikes or limits
Some employees cannot join salary sacrifice due to minimum wage rules

💡 If certain employees cannot enter salary sacrifice, you must still make bikes available to them in another way (for example, pooled bikes).

2. The bike must be used mainly for qualifying journeys

Employees must use the bike mainly for:

Commuting between home and work
Travel between workplaces during the working day

Private use is allowed, including leisure cycling or family use, as long as work-related journeys remain the main use.

🔍 Employees do not need to keep mileage logs. HMRC accepts the condition is met unless there is clear evidence to the contrary.

3. Ownership must stay with the employer

During the hire period:

The bike remains the property of the employer
The employee is hiring or borrowing the bike

Ownership can only be transferred later, and this has separate tax rules which should be reviewed carefully.

What Can Be Included?

A Cycle to Work scheme can cover:

Bicycles 🚲

Standard bicycles
Electrically Assisted Pedal Cycles (EAPCs)

Safety Equipment ⛑️

Examples that qualify:

Helmets (meeting EN standards)
Lights, reflectors, bells and horns
Reflective clothing
Child safety seats

Examples that do not qualify:

Cycle computers
Non-reflective waterproof clothing
Cycle training courses

Salary Sacrifice and National Minimum Wage

Cycle to Work schemes usually operate via salary sacrifice, but there is an important restriction.

💡 An employee cannot enter salary sacrifice if it would reduce their pay below the National Minimum Wage.

If this applies:

The employee must be offered an alternative way to access a bike
A pool bike arrangement is commonly used

Using a Scheme Provider

Most employers use a third-party Cycle to Work provider.

These providers typically:

Supply the bikes and equipment
Handle hire agreements
Support salary sacrifice administration
Provide guidance on end-of-scheme options

Using a provider simplifies setup, but it does not remove the employer’s responsibility to meet HMRC conditions.

End of the Scheme: What Happens Next?

At the end of the hire period, employers usually choose one of the following options:

Extend the hire period at a low or nil cost
Allow the employee to continue using the bike
Transfer ownership to the employee

⚠️ Transferring ownership can trigger a taxable benefit if the bike is sold for less than its market value. This step should be handled carefully.

Benefits for Employers and Employees 💰

For Employees

Savings on income tax and NICs
Lower upfront cost for a bike
Health and wellbeing benefits

For Employers

No employer NICs on the sacrificed salary
Attractive, low-cost benefit
Supports ESG and sustainability goals
Encourages healthier commuting

Practical Setup Checklist 💡

Before launching a scheme, make sure you have:

Confirmed eligibility for all employees
Reviewed National Minimum Wage impacts
Chosen a scheme provider
Documented the scheme terms
Considered how non-salary sacrifice employees will be covered
Planned how end-of-scheme ownership will be handled

Need Help Setting This Up?

Cycle to Work schemes are straightforward when implemented correctly, but small errors can remove the tax exemption.

If you are planning to introduce a scheme, change an existing one, or deal with end-of-scheme ownership, please speak to us first so we can help you structure it correctly and avoid unexpected tax issues.