Cycle to Work Scheme.

How does the Cycle to Work scheme work?

Your employer buys a bike for you to ride to work, you ‘hire’ it through salary sacrifice (which is where you save by not paying tax and National Insurance on the monthly fees) and at the end of the ‘hire’ period you buy the bike from your employer.

In other words, your salary sacrifice is made from your gross salary, not your net salary.

Hundreds of thousands of people have already bought a bike on the scheme, which was introduced as a tax exemption in 1999 by the government to ‘promote healthier journeys to work and reduce environmental pollution’.

Because it was set up to promote work journeys rather than cycling in general, your employer technically remains the owner of the bike once you finish the hire period.

Everyone knows that in practice the employee is ‘buying’ the bike, but that isn’t legally the case until the salary sacrifice ends and the employer ‘sells’ the now heavily depreciated equipment to the employee.

In the past, few employers have bothered with the final sale transaction because it was a hassle, so many employees didn’t have to make a final payment. However, that changed a few years ago with HMRC clarifying that bikes needed to be sold at Fair Market Value so as to avoid the scheme being a tax loophole.