Cycle to work schemes

Q: What conditions does the tax exemption have?

Section 244 ITEPA 2003 sets three conditions: Condition A: there is no transfer of the property in the cycle or equipment. The employee hires it and never owns it during the hire. Condition B: the employee uses it mainly for qualifying journeys. Condition C: cycles, or safety equipment, are available generally to the employer's employees. "Qualifying journeys" has the same meaning as for the works bus exemption (EIM21664): journeys between home and a workplace and between workplaces (EIM21850). Leisure use and use by family members do not break the exemption as long as they are not the main use. HMRC tells its officers that employees are not expected to keep detailed mileage records, and to accept the main use test is met unless there is clear evidence that less than half the use is for qualifying journeys. A "cycle" takes its meaning from section 192(1) of the Road Traffic Act 1988: a bicycle, a tricycle, or a cycle with four or more wheels, not being a motor vehicle. Electrically assisted pedal cycles are covered. There is no tax limit on the value of the cycle and equipment, according to the Department for Transport guidance. What counts as safety equipment? Cyclist's safety equipment is not defined in law. EIM21664 gives examples that count, such as helmets meeting EN 1078, bells, lights including dynamo packs, child seats and reflective clothing, and examples that do not, such as a cycle computer, non reflective waterproofs and cycle training.

Q: What other tax points should the employer check?

Capital allowances: cycles bought outright for the scheme are capital expenditure and will often qualify for the Annual Investment Allowance; sale proceeds at the end are brought in as a disposal value. VAT: the Department for Transport guidance says that where salary sacrifice is used, the sacrificed salary is consideration for the hire, so output VAT is due on it, and VAT is due on any later sale price. Leavers: the employer may require compensation for unrecovered costs if the employee leaves during the arrangement, depending on the agreement terms. Benefit entitlements: lower contractual pay can affect earnings related entitlements such as Statutory Sick Pay and Maternity Allowance, so employees should be told. Employees who use their own cycle for business journeys are a different case: the employer can pay approved mileage allowance payments, with the rate shown in HMRC's table for bicycles.

A cycle to work scheme lets an employer hire a cycle and safety equipment to an employee, usually in return for a salary sacrifice, without any taxable benefit arising. The exemption in section 244 ITEPA 2003 requires that the employer keeps ownership during the hire, the cycle is used mainly for journeys to and from work or between workplaces, and cycles are offered to the workforce generally. If the employee later buys the cycle, they must pay at least its market value or the shortfall is taxed.

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How does a cycle to work salary sacrifice actually work?

The Department for Transport’s cycle to work guidance for employers describes the scheme as a hire arrangement. The employee agrees to give up part of their salary in exchange for the hire of a cycle and, if wanted, cyclist’s safety equipment. The hire agreement is either between the employee and the employer (who has bought or leased the equipment) or between the employee and a third party scheme provider paid by the employer out of the sacrificed salary.

Because the employee’s contractual cash pay goes down, they pay less income tax and employee National Insurance, and the employer pays less employer National Insurance on the amount sacrificed. The guidance says the salary sacrifice arrangement typically runs for at least 12 months, whatever the length of the hire agreement. HMRC does not need to approve the scheme.

Cycles are one of the few benefits that keep their exemption when provided through salary sacrifice. HMRC’s guidance on salary sacrifice lists bicycles and cycling safety equipment, including cycle to work, among the only benefits that do not have to be valued and reported under the optional remuneration rules. Most other exempt benefits lose their exemption when they are swapped for salary.

What conditions does the tax exemption have?

Section 244 ITEPA 2003 sets three conditions:

Condition A: there is no transfer of the property in the cycle or equipment. The employee hires it and never owns it during the hire.
Condition B: the employee uses it mainly for qualifying journeys.
Condition C: cycles, or safety equipment, are available generally to the employer’s employees.

“Qualifying journeys” has the same meaning as for the works bus exemption (EIM21664): journeys between home and a workplace and between workplaces (EIM21850). Leisure use and use by family members do not break the exemption as long as they are not the main use. HMRC tells its officers that employees are not expected to keep detailed mileage records, and to accept the main use test is met unless there is clear evidence that less than half the use is for qualifying journeys.

A “cycle” takes its meaning from section 192(1) of the Road Traffic Act 1988: a bicycle, a tricycle, or a cycle with four or more wheels, not being a motor vehicle. Electrically assisted pedal cycles are covered. There is no tax limit on the value of the cycle and equipment, according to the Department for Transport guidance.

What counts as safety equipment?

Cyclist’s safety equipment is not defined in law. EIM21664 gives examples that count, such as helmets meeting EN 1078, bells, lights including dynamo packs, child seats and reflective clothing, and examples that do not, such as a cycle computer, non reflective waterproofs and cycle training.

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What must the employer do to keep the scheme compliant?

Offer cycles to the workforce generally

The offer must be open to all employees, but not everyone has to take it up and not everyone has to be offered the same deal. EIM21665 lists limited exclusions HMRC accepts, including casual staff employed for very short periods (no more than 3 weeks can be accepted without enquiry), zero hours staff during periods when they are not working, work experience students, deemed employees under IR35 and people unable to ride a cycle. Excluding employees simply because they are on probation, or are temporary staff on longer contracts, breaks the condition. If some staff cannot join the salary sacrifice, for example because it would take their pay too low, the employer can still meet the condition by offering them access to a pool of cycles (EIM21664 and EIM21666).

Protect the National Minimum Wage

HMRC’s salary sacrifice guidance says a sacrifice must not take an employee’s cash earnings below National Minimum Wage rates, and employers must have procedures to cap deductions. The Department for Transport suggests a lower value package, a longer hire period, or a cycle hired without salary sacrifice for lower paid staff.

Change the contract properly

A salary sacrifice works by changing the employment contract, with the employee’s agreement, so that the employee is clear about their cash and non cash entitlements. Employees cannot top up the cost of the hired goods from their own funds, although they can buy extra items separately.

Consider consumer credit rules

The hire will usually be a regulated consumer hire agreement under the Consumer Credit Act 1974. The Department for Transport guidance explains that an employer hiring directly to employees does not need Financial Conduct Authority authorisation if the total value of goods hired under the agreement does not exceed £1,000 and the employer is not FCA authorised for another regulated activity. Above £1,000, the employer needs authorisation or must use an authorised scheme provider.

What happens at the end of the hire period?

The guidance gives the employee three possible options: extend the hire, return the cycle, or buy it under a separate agreement made at that time. There must be no option to buy, express or implied, in or alongside the original hire agreement. EIM21667 confirms that if an agreement builds in an automatic transfer of ownership from the outset, the exemption does not apply at all. Scheme rules should not promise ownership.

If the employee does buy the cycle, EIM21667A explains that there is no tax charge as long as they pay at least market value. If they pay less, the difference is taxable. Under EIM21667 the charge is reported on form P11D, and only Class 1A National Insurance is due, paid by the employer.

HMRC’s simplified valuation table

Because second hand cycle values are hard to pin down, HMRC accepts these percentages of the original price as market value for cycles that have qualified for the exemption throughout (EIM21667A):

Age of cycle	Original price under £500	Original price £500 or more
1 year	18%	25%
18 months	16%	21%
2 years	13%	17%
3 years	8%	12%
4 years	3%	7%
5 years	Negligible	2%
6 years and over	Negligible	Negligible

If the original price used is net of VAT, VAT must be added back to reach market value, whether or not the employer is VAT registered. The table cannot be used for cycles with special value, such as antiques or hand built bikes. Employers can choose a lower figure, but HMRC can challenge it and expects evidence such as photographs and contemporaneous prices.

An alternative to selling is to let the employee keep using the cycle by extending the hire or starting a new hire agreement. The Department for Transport guidance says no tax charge arises as long as the exemption conditions are still met.

A worked example

Illustration only. An employer hires Aisha a cycle and lock with a retail price of £1,200 under a 12 month salary sacrifice. Her contractual salary falls by £100 a month for the year, so she pays income tax and employee National Insurance on £1,200 less, and the employer saves employer National Insurance on the same amount. No benefit in kind arises because the cycle is used mainly for commuting and the employer owns it.

A year after the hire began, the scheme provider offers to sell her the cycle under a separate agreement. Using HMRC’s table for a cycle costing £500 or more, 25% of £1,200 is £300. If she pays £300 or more, there is no tax charge. If she pays £100, the £200 shortfall goes on her P11D and the employer pays Class 1A on it.

What other tax points should the employer check?

Capital allowances: cycles bought outright for the scheme are capital expenditure and will often qualify for the Annual Investment Allowance; sale proceeds at the end are brought in as a disposal value.
VAT: the Department for Transport guidance says that where salary sacrifice is used, the sacrificed salary is consideration for the hire, so output VAT is due on it, and VAT is due on any later sale price.
Leavers: the employer may require compensation for unrecovered costs if the employee leaves during the arrangement, depending on the agreement terms.
Benefit entitlements: lower contractual pay can affect earnings related entitlements such as Statutory Sick Pay and Maternity Allowance, so employees should be told.

Employees who use their own cycle for business journeys are a different case: the employer can pay approved mileage allowance payments, with the rate shown in HMRC’s table for bicycles.

What are the common mistakes?

Scheme documents that promise ownership at the end of the hire, which removes the exemption from the start.
Transferring cycles at a nominal 5% or 10% when HMRC’s table or market value is higher, leaving an undeclared benefit.
Excluding probationers or temporary staff from both the salary sacrifice and any pool, which breaks the availability condition.
Sacrifices that push pay below the minimum wage.
Hiring goods worth more than £1,000 directly without FCA authorisation.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.