Cycle to Work Scheme: A Tax-Efficient Employee Benefit for Businesses

The Cycle to Work Scheme is a UK government initiative that allows employees to obtain bicycles and cycling equipment tax-efficiently through a salary sacrifice arrangement.

For employers, the scheme offers a simple way to provide an attractive employee benefit while potentially reducing Employer National Insurance contributions and tax. For employees, it allows them to save on the cost of commuting while supporting a healthier and more environmentally friendly way of travelling to work.

At Arnold Hill & Co LLP, we regularly advise businesses on tax-efficient employee benefits and payroll arrangements. The Cycle to Work Scheme is one of the most straightforward and popular benefits employers can introduce.

How the Cycle to Work Scheme Works

Under the scheme:

1. The employer purchases a bicycle and approved accessories.
2. The employee hires the equipment from the employer through a salary sacrifice agreement.
3. The cost is repaid through deductions from the employee’s gross salary.
4. Because payments are taken before tax and National Insurance, the employee benefits from tax savings on the cost of the bike.

Typically, employees can save 25–39% depending on their income tax band.

Employers may also save Employer National Insurance contributions on the amount sacrificed.

Benefits for Employers

Introducing the Cycle to Work Scheme can offer a range of advantages for businesses:

• Employer National Insurance savings
• Improved employee wellbeing and engagement
• Support for sustainable commuting
• An attractive, low-cost employee benefit
• Enhanced recruitment and staff retention

For businesses in cities such as London, where commuting costs are high, the scheme can be particularly appealing to employees.

Setting Up a Cycle to Work Scheme

Many employers set up the scheme through a provider such as Cycle Scheme, which administers the process.

1. Register as an Employer

To register, you will typically need:

• Business name and address
• Number of employees
• VAT number
• A nominated administrator (often HR)
• Payroll contact details

Employers can also decide:

• Whether to retain or pass on the Employer NIC saving
• Whether to set a maximum value for bikes and accessories
• The hire period (commonly 12 months)

2. Employees Apply

Once the employer is registered, employees can apply through the scheme provider’s website using the employer code.

They select the bicycle and accessories they wish to purchase.

3. Employer Approval

The employer reviews and approves the request through the provider’s portal. The provider then issues an invoice to the employer for the equipment.

4. Bike Issued to Employee

Once the invoice is paid:

• The employee receives an e-certificate
• This can be used at participating retailers to obtain the bicycle and accessories
  
  

5. Payroll Salary Sacrifice

The salary sacrifice deduction is then implemented through payroll for the agreed hire period.

Employers will need to ensure their payroll provider correctly records the salary sacrifice arrangement.

How Arnold Hill & Co LLP Can Help

Although the Cycle to Work Scheme is relatively straightforward, employers still need to ensure the scheme is set up correctly from a tax and payroll perspective.

Our team at Arnold Hill & Co LLP can support businesses by:

• Advising on salary sacrifice arrangements
• Ensuring the scheme is tax compliant
• Supporting payroll implementation
• Advising on National Insurance savings
• Helping businesses integrate the scheme into their employee benefits strategy

Considering the Cycle to Work Scheme?

If you are considering introducing the Cycle to Work Scheme for your business, our team would be happy to advise on the tax and payroll implications and help ensure the scheme is implemented efficiently.

Contact us to discuss how employee benefit schemes can support both your team and your business.