A common misconception is that the scheme can only be used for people to buy bikes, but this is not the case; the ways in which people can benefit from the scheme are far broader (Department for Transport Guidance).

• Employees can purchase bikes, e-bikes and cyclists’ safety equipment. This is something all schemes offer. 
• Beyond purchase, people can access all-inclusive e-bike subscriptions through the scheme, although not all providers offer this option.
• A new addition is bike share rental. Employees can now pay for bike share services like Lime, Forest, Voi and Santander Cycles through the Cycle to Work scheme, helping them save 28-47% on their journey. This option is only offered by specific scheme providers.

1. Companies pick a provider and offer the Cycle to Work scheme to their employees as an employee benefit. 
2. Employees sign up to the scheme and pick their items. How this works in practice varies from scheme to scheme. 
3. The items are paid for out of the employee’s salary, saving on income tax and National Insurance. 
4. After the final salary deduction (typically over 12 months), there is a change of contract away from a consumer hire agreement, enabling the employee to take full ownership of their items. The mechanism for this varies between providers.

Salary sacrifice is an arrangement where employees exchange part of their pre-tax (gross) salary for a non-cash benefit. Because the salary reduction happens before tax and National Insurance are calculated, both employees and employers pay less in contributions.

The main Cycle to Work steps:

1. You choose and order your items, either online or using a voucher, depending on your scheme provider.
2. Your monthly gross salary is reduced by the cost of those items before tax is calculated.
3. Tax and National Insurance are calculated on your reduced salary, so you pay less of both.
4. Your employer also saves, paying 15% less in National Insurance contributions on the sacrificed amount.
5. You pay monthly from your salary until you have paid for your item(s), usually for 12 months. Saving on every payment. 
6. After the hire period ends, you take ownership of the equipment, having enjoyed the full benefits of your tax savings.

Your savings depend on your tax bracket:

• Basic rate taxpayer: Save around 28% (20% income tax + 8% National Insurance)
• Higher rate taxpayer: Save up to 42% (40% income tax + 2% National Insurance)
• Additional rate taxpayer: Save up to 47% (45% income tax + 2% National Insurance)

Example: If you buy a £1,000 bike as a basic-rate taxpayer, you can save £280 through reduced tax and National Insurance contributions. The difference in your take-home pay and the realised cost of the bike to you will be £720. Your employer also saves £150 in National Insurance, making the scheme cost-neutral to them.

Salary sacrifice isn't unique to cycling. Other common schemes in the UK include company car leasing, pension contributions, and childcare vouchers. They all follow the same principle: sacrifice gross salary, receive a non-cash benefit, and save on tax and National Insurance.

The voucher conundrum: While the salary sacrifice mechanism is sound, traditional Cycle to Work providers have implemented it using vouchers, which create delays, limit where you can spend, and add an unnecessary admin burden to HR and benefit teams. This friction undermines what should be a straightforward benefit.

What is a Cycle to Work Voucher and Where Can You Spend It? 

A Cycle to Work voucher, also referred to as an e-certificate or letter of collection, is the traditional mechanism used by older Cycle to Work providers to deliver the scheme. It's a one-time payment vehicle (digital or paper) issued to an employee, typically with an expiry date, that can only be redeemed at participating retailers who accept that specific provider's voucher. The process is as follows:

1. An employee chooses the items they want to purchase through the Cycle to Work scheme. Note: these all need to be from one retailer.
2. The employee requests a voucher from their employer for the total cost of the items they want. 
3. Their employer approves the voucher amount requested.
4. Once the voucher has been issued by the scheme provider and become active (this can be weeks later), the employee can redeem their voucher at the chosen shop.

The voucher process is outdated and creates a lot of admin and delays behind the scenes for employers and bike shops, which is why many are turning to modern Cycle to Work schemes, where using the scheme is as simple as online shopping.

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What eligible products can you buy through the Cycle to Work scheme?

The Cycle to Work scheme can not only be used to buy eligible products, but also to save on bike share services like Lime, and on e-bike subscriptions. The range of products eligible for purchase is incredibly broad and spans cycles and cyclists’ safety equipment:

• Bikes and e-bikes
• Reflective clothing (jackets, waterproof trousers, gloves & more)
• Helmets (must conform to European standard EN 1078)
• Child seats
• Accessories (lights, locks, bells, panniers, mudguards & more)
• Components (wheels, framesets, drivetrain components & more)
• Consumables (inner tubes, tyres, brake cables, etc.)

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What products are not eligible to be bought through the Cycle to Work scheme?

Any products that are not cycles or cyclists’ safety equipment cannot be purchased through the Cycle to Work scheme. The tax legislation EIM21664 and the Department for Transport Guidance define what counts as cyclists’ safety equipment. Specific examples of non-eligible products are:

• Cycle computers
• Waterproof clothing that is not reflective clothing
• Cycle training equipment 
• Gels and other cycling nutrition products

What happens if I leave my business whilst I have an active Cycle to Work Agreement?

This is a common and easily managed process. Be sure to check with your company exactly how it will work for you, but in general, any remaining salary sacrifice deductions that still need to be made will be taken from your remaining payslip(s). 

Depending on the total amount still needing to be repaid, you may miss out on the full potential of your tax savings. This is because, for a given payslip, it is not possible to salary sacrifice below minimum wage, meaning any deductions below this threshold will come out of your net salary and won’t have the benefit of tax savings. 

Remember to check with your HR and payroll team to see exactly how this might work for you, as this is a general description of the process.