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The ‘Cycle2Work’ scheme is a tax incentive made possible through the government’s ‘Green Transport Plan’; aimed at encouraging employees to cycle to work thereby reducing air pollution and improving their health.
We have tried to answer the most common questions both employees and employers have about the scheme and have detailed them below.
If you require any further information, please do not hesitate to contact us.
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Q. Whats in it for me?
A. You can save income tax, VAT and national insurance contributions by having the bike’s retail price removed from your salary before deductions. You can spread the cost of a new bike over 18 months.
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Q. Who does the bike belong to?
A. You will be leasing the bike from your company for 18 months. At the end of that period, your company can transfer ownership for a nominal fee.
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Q. What does “salary sacrifice” mean?
A. Salary sacrifice means giving up part of your salary in exchange for a benefit, in this case, a bicycle. Salary sacrifice cannot be used if your monthly payments take your remaining gross salary to below the minimum wage.
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Q. What bikes can or can’t I buy?
A. Your new bike must be used for commuting, and therefore suitable for this purpose. Road bikes, hybrids, mountain bikes, folding bikes, commuting bikes… these are all fine. Children’s bikes are not available via Cycle2Work. Any brand of bike, and sale bikes can be purchased.
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Q. Can I use the bike for leisure riding as well as commuting?
A. Yes, as long as the primary use is to get to work.
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Q. What accessories can I include?
A. You can include safety accessories associated with riding the bike to work, so a helmet, reflective wear etc. is fine. Non-related items like downhill helmets, energy food or car racks are not allowed.
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Q. Can I purchase accessories only?
A. No, the rules set by the DfT (Dept. for Transport) say that you can only purchase a bike and accessories.
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Q. What happens if the bike is stolen?
A. We highly recommend an insurance policy is taken out when you take collection of the bike to cover you in the event of the bike being stolen.
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Q. When do I start paying?
A. Your monthly salary sacrifice will normally begin your next pay packet after you have collected your bike or had it delivered. Check with your own payroll department or HR for confirmation.
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Q. Can I pay off the balance early or pay over a shorter time?
A. No. The commitment will run for 12 months.
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Q. What happens if I’m off work?
A. If you take maternity leave, unpaid leave, holiday or sick leave that takes your monthly salary to below the amount of your salary sacrifice, your employer will suspend your payments until you are earning again.
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Q. What happens if I leave my company?
A. If you leave the company or retire, your bike becomes a taxable benefit. The balance remaining on the price of your bike will be deducted from your final net salary. As these will no longer be part of the salary sacrifice you will not save the income tax or National Insurance on the remaining balance.
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Q. Is there a minimum and maximum amount that I can spend?
A. There is no minimum or maximum limit on the total value of the equipment including the cycle (in excess of £1000, your employer will need to obtain a standard consumer credit licence to cover that business). It is possible to loan two cycles to one employee if, for example, that employee needed a cycle at either end of a train journey between their home and place of work).
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Q. Who does the bike belong to?
A. It belongs to the company for the 18-month period of the salary sacrifice. At the end of this period, the company may transfer title of the goods.
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Q. How much will this cost the company?
A. Nothing! It really is free. The company is buying the bike, and then leasing it back to the employee until the full amount is recovered. You will even save money by not paying your employer’s contributions of the amounts that would have been deducted for national insurance.
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Q. Does the company need to apply for dispensation from the Inland Revenue or from HM Customs & Excise to run the Cycle2Work programme?
A. No. As long as all Cycle2Work forms are completed correctly, there is no need to apply for an official dispensation.
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Q. Does my company need to apply for a credit license?
A. No. Companies are allowed to run salary sacrifice schemes without a specific credit license as long as the purchase amount doesn’t exceed £1,000.
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Q. Can we use the Cycle2Work programme even if we are not VAT registered or exempt from VAT?
A. You can. There are still huge savings to be made, even without being able to reclaim the VAT.
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Q. I'm self employed; can I join the Cycle2Work scheme?
A. You must be paid via PAYE to make the salary sacrifice.
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• Bicycles bought under the Cycle2Work programme must be used primarily for traveling to and from work, and they must be suitable for that purpose.
• VAT may be reclaimed on bicycles if they are purchased to implement a green travel plan, reduce car use or increase staff health levels.
• Leavers or retirees from your company become responsible for any outstanding amounts. These are usually subtracted from final salary payments, and become a taxable benefit.
• At the end of the lease period, the employer may transfer title of the goods to the employee for a nominal fee at Fair Market Value (Typically 5% of original purchase costs).
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