Salary sacrifice calculator: 2026/27
UK Cycle to Work Calculator 2026/27
Net cost calculation across basic/higher/additional rate bands for the UK Cycle to Work salary sacrifice scheme under section 244 ITEPA 2003: combined IT + employee NI saving (28% basic / 42% higher / 47% additional rate), £1,000 retail-price cap under FCA Consumer Credit Act exemption (or higher under FCA-regulated schemes), HMRC end-of-scheme valuation table EIM21664, e-bike EAPC eligibility, employer NI 15% pass-through schemes, and self-employed alternatives.
Overview
The Cycle to Work scheme allows employees to obtain a bicycle and safety accessories via salary sacrifice over typically 12-36 months. The employer purchases the bike and equipment, leases it to the employee, and the employee repays via gross-salary deduction. The Income Tax and employee NI savings on the sacrificed amount reduce net cost to typically 58-72% of retail depending on tax band. The scheme was introduced under section 244 ITEPA 2003 and the Cycle to Work Tax Concession Order 1999 and remains one of the most widely-used UK tax-advantaged employee benefits.
Net cost on a £1000 bike by tax band
| Tax band | IT rate | Employee NI rate | Total saving | Net cost | Effective % of retail |
|---|---|---|---|---|---|
| Basic rate | 20% | 8% | £280 | £720 | 72% |
| Higher rate | 40% | 2% | £420 | £580 | 58% |
| Additional rate | 45% | 2% | £470 | £530 | 53% |
For larger bike packages above the standard £1000 cap (e-bikes, cargo bikes), FCA-regulated scheme operators (Green Commute Initiative, Cyclescheme Plus) can offer schemes up to £4,000-£12,000. The proportional saving stays the same - a higher-rate-band employee on a £3,000 e-bike saves £1260 (42%) for a net cost of £1740.
End-of-scheme HMRC valuation table
Per HMRC EIM21664, the fair-market value of a bike at scheme end depends on age and original retail price. To avoid Benefit in Kind on the eventual transfer, the employee must pay at or above this valuation.
| Age at transfer | Original price £500+ | Original price under £500 |
|---|---|---|
| 12 months | 25% | 18% |
| 18 months | 21% | 16% |
| 2 years | 17% | 13% |
| 3 years | 12% | 8% |
| 4 years | 7% | 3% |
| 5 years | 2% | Nominal |
| 6+ years | Nominal | Nominal |
Most modern schemes operate the extended-lease-then-nominal-transfer route: at scheme-end (typically 12-36 months) the employee continues to lease the bike at zero cost for a further 3-5 years, and the bike eventually transfers free once the HMRC valuation reaches nominal. This avoids the BIK that would otherwise arise on undervalued direct purchase.
Frequently asked questions
What is the UK Cycle to Work scheme?
Cycle to Work is a UK Government-backed salary sacrifice scheme allowing employees to obtain a bicycle (and safety accessories) for commuting through a tax-advantaged employer arrangement. The employer purchases the bike and equipment, leases it to the employee, and the employee repays via salary sacrifice over 12-36 months. Income Tax and employee NI savings on the sacrificed amount typically reduce the net cost to 58-70% of retail price depending on tax band. The scheme was introduced under section 244 ITEPA 2003 and the Cycle to Work Tax Concession Order 1999; it is one of the most widely-used UK tax-advantaged employee benefits.
How is the tax saving calculated?
Three-component saving on the gross salary sacrificed. (1) Income Tax saving at marginal rate (20% basic, 40% higher, 45% additional). (2) Employee Class 1 NI saving at 8% (below £50,270 Upper Earnings Limit) or 2% (above UEL). (3) Employer Class 1 Secondary NI saving at 15% (above £5,000 Secondary Threshold from April 2025), which the employer may pass back to the employee via reduced lease cost. Combined typical net cost: basic-rate employee 72% of retail (28% saved on IT + NI); higher-rate 58% (42% saved); additional-rate 53% (47% saved). On a £1000 bike: basic-rate net £720; higher-rate net £580; additional-rate net £530.
What is the £1,000 limit and when does it apply?
A £1,000 limit historically applied because most employers operated within the FCA Consumer Credit Act Article 60F exemption, which permits regulated credit agreements up to £1,000 without requiring a full consumer-credit licence. From June 2019 HMRC clarified that the £1,000 cap is NOT a tax cap but a regulatory cap - employers that are FCA-regulated or that operate under specific FCA exemption provisions can offer schemes above £1,000 with no Income Tax or NI consequence for the employee. Many large employers (Cyclescheme, Bike2Work, Green Commute Initiative) now offer schemes up to £4,000-£12,000 for premium e-bikes and cargo bikes. The £1,000 retail-price cap remains the default for smaller employers operating under the standard Article 60F exemption.
What can be included in the bike package?
The bike itself plus safety accessories qualify for the tax-advantaged treatment. Qualifying safety accessories under EIM21665 include: helmet, lights (front, rear, side reflectors), bell, lock, mirrors, child seat (where applicable), pump, repair kit, gloves and reflective clothing, mudguards, panniers/rack/trailer for cargo carrying, GPS bike computer (where intended for safety / navigation rather than recreation). Non-qualifying: ordinary cycling clothing (lycra, jerseys), accessories without safety rationale (water bottle, computer monitor), insurance premiums (separate payment), training courses (separate). The bike must be available for use at least partly for "qualifying journeys" (commuting to work, between work locations); 75%+ business use is the safe-harbour but lower percentages are acceptable subject to the BIK fair-value purchase-at-end calculation.
What happens at the end of the scheme?
Three end-of-scheme outcomes. (1) Continue to lease the bike from employer for a nominal further period (typically 3-5 years) at no further cost - the bike eventually transfers free at the end of the extended lease when HMRC valuation drops to nominal. This is the most common modern approach. (2) Purchase the bike outright at HMRC fair-market valuation - sliding scale per HMRC EIM21664 ranging from 25% at 12 months down to nominal at 6+ years. The purchase price is taxable as Benefit in Kind to the extent it is below the HMRC valuation; if you pay the full HMRC valuation no BIK arises. (3) Return the bike to the employer at scheme end - rare in practice. The extended-lease then nominal-transfer route (option 1) is the standard outcome for most modern Cycle to Work scheme participants.
How does the BIK calculation work?
Two BIK risks. (1) During the scheme: salary sacrifice in exchange for an asset is a benefit. The benefit is the salary forgone; this is not separately taxed because the salary sacrifice itself reduces gross pay subject to PAYE - the entire mechanism IS the tax saving. No additional BIK during the scheme period provided the bike is used for qualifying journeys. (2) At end of scheme transfer: if you purchase the bike below HMRC fair-market value the difference is a BIK taxable at marginal rate. Example: 3-year-old £1000 bike, HMRC valuation at 3 years = 12% of original = £120. If you pay £25 to acquire the bike, the BIK = £95, taxable at marginal rate (typically £38 for a higher-rate taxpayer). Most scheme operators arrange the extended-lease-then-nominal-transfer route to avoid the BIK altogether.
Can I get an e-bike through Cycle to Work?
Yes - e-bikes and cargo e-bikes qualify for Cycle to Work on the same basis as standard bikes. The £1,000 retail-price cap is the binding constraint for many e-bike options (typical mid-range e-bike £1,500-£3,500); FCA-regulated scheme operators can offer above £1,000 (often up to £4,000-£12,000) which makes premium e-bikes accessible. The tax saving on a £3,000 e-bike under an FCA-exemption scheme: basic-rate net £2,160 (28% saved); higher-rate £1,740 (42% saved); additional-rate £1,590 (47% saved). E-bikes must meet UK EAPC (Electrically Assisted Pedal Cycle) regulations: motor assistance only when pedalling, motor assistance ceases at 15.5 mph, motor power below 250W continuous. Non-EAPC e-bikes (throttle-controlled, higher speed, higher power) are NOT eligible for Cycle to Work because they are classified as L1e-A or L1e-B vehicles requiring registration and insurance.
How does the employer NI saving interact?
Employers save 15% Class 1 Secondary NI on the salary sacrificed (post-April 2025 rate; was 13.8% pre). On a £1000 bike sacrificed, employer saves £150. Some employers pass this saving back to the employee via reduced lease cost or extended lease term; others retain it as cost offset for the scheme administration. The pass-through is increasingly common at larger employers competing for benefits packages. Where the employer passes back the full 15%, the net cost to the employee drops further: basic-rate £570 (43% saving total); higher-rate £430 (57% saving total). Check the specific scheme terms - "salary sacrifice with employer NI pass-back" is the most generous variant.
What if I leave the employer mid-scheme?
Three options at exit. (1) Buy out the remaining lease obligation - pay the remaining salary sacrifice amount at NET (post-tax) value, typically a substantial cost because the tax saving has already been realised on past sacrifice. (2) Transfer the lease to a new employer if they operate the same scheme provider. Rare but possible at major employers using Cyclescheme or Bike2Work. (3) Return the bike to the employer. The buyout-at-net is the standard outcome - reflects that the tax saving was already given on past sacrifice and the employer needs to recoup the asset cost. Some scheme operators (Green Commute Initiative) offer "leaver protection" insurance that covers part of the buyout cost in exchange for a slightly higher monthly lease - useful for employees in volatile employment situations.
Are there alternatives to Cycle to Work?
Three main alternatives. (1) HMRC mileage allowance for cycling - 20p per business mile of cycling, payable tax-free by employer. Limited but useful for employees who already own a bike and use it for occasional business journeys (between work locations, not commuting). (2) Buy direct without scheme - use after-tax money. Substantially more expensive but no employer dependency and full ownership from day one. (3) Workplace nursery provision - separate £55/week tax-free benefit (£25 higher-rate / £25 additional-rate post-2011 closure to new entrants). Not a substitute for Cycle to Work but a parallel salary-sacrifice mechanism in the UK benefits universe. The Cycle to Work scheme remains the most generous bike-purchase tax route for employed individuals with regular commuting needs.
How does Cycle to Work interact with self-employment?
Self-employed individuals (sole traders, partnerships, Limited company directors who are not also employees in a substantive sense) cannot use the Cycle to Work salary sacrifice scheme because there is no employment salary to sacrifice. Self-employed individuals instead claim bike-related expenses through their business. (1) Bike as fixed asset: capital allowance via Annual Investment Allowance at 100% in year of purchase up to £1m AIA cap (bicycles are typically too small for AIA exhaustion concerns). (2) Cycling expenses: 20p per business mile for sole traders using own bike for business journeys (separate to AIA on the bike itself). (3) Limited company director: company can purchase the bike as company asset; AIA applies; bike for commuting is a BIK at 0% provided 75%+ business use; bike for leisure use is a 20%-of-cost annual BIK. The salary sacrifice route is not available because the director's remuneration is typically structured for tax efficiency rather than salary sacrifice.
Is the scheme worth it?
For employees in the basic-rate band: typically yes, with a 28% net saving on a £1000 bike (£280 saved). For higher-rate band employees: more compelling at 42% net saving (£420 saved). For additional-rate: most generous at 47% saving (£470 saved on a £1000 bike). The end-of-scheme buyout / extended lease structure is the operational concern most employees overlook - run a worst-case scenario assuming you might leave the employer mid-scheme. Particularly worthwhile for e-bikes where the absolute saving is meaningfully larger in £ terms: a £3,000 e-bike at higher rate saves £1,260 (vs £420 on a £1,000 bike). Compare against the alternative of buying a similar-spec bike second-hand: typical 30-50% discount vs new retail can be similar net cost without the scheme commitment.
Related calculators and guides
- Salary sacrifice calculator - general framework for pension, EV and other salary sacrifice arrangements.
- Salary sacrifice vs Relief at Source - pension contribution route comparison.
- EV salary sacrifice guide - 4% BIK rate on electric company cars.
- Employer cost calculator - total cost-to-employer including Class 1 Secondary NI saving on salary sacrifice arrangements.
- P11D BIK calculator - Benefit in Kind across other non-cash employee benefits.
- UK mileage allowance guide - 20p/mile cycle alternative for ad-hoc business journeys.
- Salary calculator - PAYE take-home after salary sacrifice deduction.