Cycle to work tax savings to be aware of

The cycle-to-work scheme continues to be a popular and tax-efficient benefit for both employers and employees.

Despite speculation, no financial cap was introduced in the November 2025 Budget. This is notable, particularly as some cycles can cost more than £5,000, making the cycle to work tax savings even more valuable.

Why cycle to work tax savings remain popular

The appeal of the scheme is clear. The cycle-to-work tax benefit allows employees to save on the cost of a bike while spreading payments in a tax-efficient way.

For employers, it offers a practical and cost-effective benefit that can support employee well-being and sustainability goals.

How the cycle to work tax scheme works

A typical arrangement is structured as follows:

• The employer registers with a cycle-to-work scheme provider
• The employer purchases the cycle and hires it for the employee
• The hire is usually set up through a salary sacrifice arrangement
• The hire period typically lasts between 12 and 18 months

During this period:

• The employee repays the cost through gross monthly salary deductions
• Because deductions are made before tax, this creates a cycle to work tax savings

Example of the tax savings

• If monthly deductions are £400
• A higher-rate taxpayer could save around £160 in tax each month
• There is also a small saving in national insurance contributions

For employers:

• National insurance savings of around £60 per month can be achieved

Key rules for the cycle to work tax relief

To qualify for the cycle to work tax benefits, the scheme must meet certain conditions:

• It must be offered across the whole workforce
• It does not have to be delivered through salary sacrifice, but this is the most common approach
• At least 50% of the cycle’s use must be for qualifying journeys

In most cases, this means commuting to and from work.

What happens at the end of the hire period?

At the end of the hire period, there are a few options available:

• The employee can return the cycle to the provider
• The hire agreement can be extended for a nominal payment

Many employees choose a third option:

• Taking ownership of the cycle by paying a fair market value

How ownership is valued

• For a cycle that is one year old and originally cost more than £500
• HMRC accepts a disposal value of 25% of the original price

Lower percentages apply for:

• Older cycles
• Cycles with an original cost of £500 or less

Why cycle to work tax planning matters

The cycle-to-work tax scheme remains a flexible and efficient way to reduce costs for employees while offering a valuable benefit.

However, to fully benefit from the available tax savings, it is important to ensure the scheme is structured correctly and meets HMRC requirements.

As part of the SMH Group, you will also benefit from access to a wider range of services to support you through every stage of your financial journey. Give us a call at 01142 664 432 or email info@smh.group for more information.