How does the Cycle to Work scheme work and how much can I save in 2026/27?

Full answer

The Cycle to Work scheme is a salary-sacrifice arrangement: you agree to give up part of your gross salary in exchange for the loan of a bike and safety equipment, usually over 12 to 18 months. Because the sacrifice comes out of pre-tax, pre-NI pay, you avoid Income Tax and employee National Insurance on that slice of salary, which is where the saving comes from. The bike must mainly be used for commuting or other qualifying journeys. Your saving equals your combined marginal Income Tax and NI rate. A basic-rate taxpayer (income in the 12,571 to 50,270 band) pays 20% tax plus 8% employee NI, so sacrificing salary saves about 28%. A higher-rate taxpayer (50,271 to 125,140) pays 40% tax but only 2% NI above the upper threshold, so saves about 42%. Worked example: a 1,000 bike for a basic-rate employee costs roughly 720 in net pay over the hire period; for a higher-rate employee, roughly 580 - before any end-of-scheme transfer fee. At the end of the hire period you normally take ownership of the bike. To avoid a benefit-in-kind charge, HMRC sets a fair market value depending on the bike's age and original price; schemes typically handle this with a small final payment or an extended loan. There is no statutory upper limit on the bike value, but employers offering the scheme through a consumer-credit-authorised provider, or relying on the standard group consumer credit licence, may cap it (1,000 is a common limit, higher with the right authorisation). The scheme reduces your gross salary while active, which can also slightly lower pension contributions or other earnings-linked figures - usually a minor effect. It does not work if sacrificing salary would take you below the National Minimum/Living Wage (12.71 per hour for those 21+). Use the take-home pay calculator to see how salary sacrifice changes your monthly net pay.

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