SALARY SACRIFICE · 2026/27

Cycle to Work — What the Government Will Actually Pay For

Between 28% and 47% of your next bike, depending on your tax rate. The scheme is genuine. The saving is real. Here is the full picture.

8 min read · Updated June 2026

The Cycle to Work scheme has existed since 1999. For most of those years it has been one of the least glamorous employee benefits on offer — popular enough to persist, useful enough to be worth knowing about, but rarely the first thing people think of when considering their financial position.

That has changed somewhat with the rise of e-bikes, cargo bikes, and the working-from-home-adjacent habit of cycling more than before. The scheme has also quietly removed its original £1,000 limit. And the combination of rising bike prices and falling effective tax costs means the saving is more significant than it has ever been for higher-rate taxpayers.

The mechanics are simple. The implications are slightly more nuanced than they appear.

The government will pay between 28% and 47% of your next bike. The question is whether you would have bought it anyway.

How It Works

Cycle to Work is a salary sacrifice scheme. Your employer buys the bike and equipment. You agree to reduce your contractual salary by the cost, spread over a hire period — typically 12 months. Because the reduction comes from your gross salary before tax and National Insurance are calculated, you pay neither Income Tax nor NI on the sacrificed amount.

At the end of the hire period, you take ownership of the bike for a small fair market value payment — typically 3–7% of the original value, as set by HMRC guidance. On a £1,000 bike after 12 months, that is £30–70.

The saving depends entirely on your marginal tax rate.

Tax position

Saving rate

Cost on £1,000 bike

Cost on £2,000 e-bike

Basic rate (20% IT + 8% NI)

28%

£720

£1,440

Higher rate (40% IT + 2% NI)

42%

£580

£1,160

Additional rate (45% IT + 2% NI)

47%

£530

£1,060

For a higher rate taxpayer buying a £2,000 e-bike, the effective cost through Cycle to Work is £1,160. The government and National Insurance absorb the other £840. That is a meaningful saving on a purchase many people are making regardless.

The £1,000 Limit That No Longer Exists

When the scheme launched in 1999, there was a £1,000 limit on the value of equipment that could be included. This limit was removed for standard employees in 2011. There is now no HMRC cap on the scheme value.

Many employers have not updated their internal policies to reflect this. Company schemes often still impose limits of £1,000 or £1,500, not because HMRC requires it but because the HR team has not revisited the policy. It is always worth checking the actual scheme rules with your employer rather than assuming the limit applies.

The absence of an HMRC cap means high-value e-bikes, cargo bikes, and specialist road or mountain bikes are all in scope, provided your employer’s scheme allows it.

What You Can and Cannot Include

The scheme covers bicycles and cyclist safety equipment. Broadly this means:

In scope: bikes of any type including e-bikes, folding bikes, and cargo bikes; helmets; lights; locks; high-visibility clothing; panniers; padded cycling shorts classified as safety equipment.

Out of scope: GPS devices and cycle computers not integrated into the bike; smartphones; general clothing not classified as safety equipment; accessories that are primarily convenience rather than safety items.

The line between safety equipment and accessories is not always clear, and scheme providers interpret it with varying degrees of generosity. If you are in doubt about a specific item, ask your employer’s scheme provider before the purchase.

When It Is Not Worth It

The saving is real, but it comes with conditions that are worth being honest about.

Your employer must offer the scheme. Cycle to Work requires employer participation. It cannot be arranged independently. If yours does not offer it, the option is simply not available.

The mortgage application risk. If you are applying for a mortgage or remortgaging in the near future, a salary sacrifice arrangement reduces your stated contractual salary. Most lenders use this figure for affordability assessments. At modest sacrifice levels this rarely causes problems, but if you are borrowing close to your maximum, timing matters.

The bike you would not have bought anyway. The saving is only a saving if you were going to buy the bike. A 42% discount on a purchase you did not need is still a 58% expenditure you did not plan for.

The National Minimum Wage floor. Your post-sacrifice salary cannot fall below National Minimum Wage. At higher sacrifice levels and lower salaries this can become a real constraint.

The Bottom Line

For a basic rate taxpayer, Cycle to Work saves roughly 28% on a bike and equipment they intended to buy regardless. For a higher rate taxpayer, it saves 42%. On an e-bike costing £2,000, that is £840 returned to you by way of avoided tax and National Insurance.

Important: This article is for informational purposes only and does not constitute financial or tax advice. Based on 2026/27 HMRC rates which are subject to change. Individual circumstances vary. Seek independent advice from a qualified financial adviser before making any financial decisions. When you invest, your capital is at risk. WageLab is not FCA regulated.

Use the WageLab calculator to see how these tax rules apply to your specific circumstances.

WageLab is not FCA regulated and does not provide financial advice. This article is for informational purposes only. Full article content coming soon.