How Cycle to Work Actually Works
Cycle to Work is a UK government-backed employee benefit that lets you get a bike and accessories through your employer using salary sacrifice. Instead of buying a bike with your after-tax income, your employer "hires" the bike to you. The hire payments are deducted from your gross salary before tax and National Insurance are applied.
The result: you pay less income tax and less NI on your salary during the hire period, effectively getting the bike at a significant discount.
The Tax Saving — Basic vs Higher Rate
The saving depends on your tax band:
- Basic rate (20%): Save 20% income tax + 8% NI = 28p per £1
- Higher rate (40%): Save 40% income tax + 2% NI = 42p per £1
A higher-rate taxpayer (common in NHS Band 7+, senior teachers, senior police) effectively gets a 42% discount on any bike purchased through the scheme. For NHS staff, see our Band 7 guide on how salary sacrifice maximises take-home pay.
What Can You Buy?
The scheme covers bikes (including e-bikes up to 25km/h) and safety equipment:
- Helmet (required)
- Lights (required)
- Locks
- Panniers and bags
- Clothing (Hi-vis, gloves, waterproofs)
- Cycle computers and GPS devices
Accessories must be purchased as part of the same hire agreement as the bike to qualify for the tax exemption.
After the Hire Period — Owning Your Bike
At the end of the hire period (12, 18 or 24 months), you pay a Fair Market Value (FMV) fee to take ownership. HMRC publishes FMV guidelines:
- Bike under £500: FMV = 18% of original price (after 12 months)
- Bike over £500: FMV = 3% of original price (after 12 months)
- After 18 months: FMV drops further
For a £1,000 bike at 12 months, you pay just £30 FMV to own it outright. Combined with your tax saving, the total you paid is approximately £750 for a £1,000 bike.