Cycle to Work scheme 2026/27: the rules, the £1,000 figure, and what it saves

The Cycle to Work scheme lets an employer hire a bike to an employee in return for a salary sacrifice, with the hire exempt from tax under section 244 of the Income Tax (Earnings and Pensions) Act 2003. Two things about it are widely misread. There is no tax limit on the bike’s value — the £1,000 figure is a consumer credit rule that applies to one way of running a scheme. And the savings figures in the government’s own guidance use 2019 National Insurance rates. This page sets out the statute, HMRC’s manual and the Department for Transport guidance, with the arithmetic redone for 2026–27, as read on 26 October 2026.

How the scheme works

In practice the employer, or a provider on its behalf, buys the bike and hires it to the employee, and the employee gives up salary to cover the hire. Because the hire is exempt and the salary given up is not paid, neither income tax nor National Insurance is due on it. The DfT guidance turns the statute into three working conditions:

• “An employee must not, at any point during the hire period, own the cycle;”
• “At least 50% of the cycle’s use must be for ‘qualifying journeys’, i.e. commuting to work purposes;”
• “The offer of the use of hired cycles must be made available across the whole workforce, with no groups of employees being excluded.”

“The salary sacrifice arrangement is typically for at least 12 months.” And the sacrifice has a floor: “Your employee must not sacrifice salary to a level below this minimum”.

What “available generally” and “mainly” mean

HMRC’s manual reads both tests practically. Available generally: “this does not mean that every employee has to be provided with a bicycle or equipment, just that the offer of cycles or equipment is open to all employees if they wish to take it up”. Main use: “Accept that the test is satisfied unless there is clear evidence to suggest that less than half of the use of the cycle or equipment is on qualifying journeys.” “Employees are not expected to keep detailed records of time spent cycling or miles travelled for the purpose of this ‘main use’ test.”

Is there a limit? The £1,000 figure explained

The £1,000 figure comes from consumer credit law. The guidance on the hire agreement: “This is likely to be a regulated consumer hire agreement under the Consumer Credit Act 1974 (CCA).” An employer can avoid needing FCA authorisation for that, but only within a value: “This exemption does not apply if the total value of the goods hired under the agreement exceeds £1,000. This is irrespective of the value of the salary sacrifice arrangement.”

So a scheme that stops at £1,000 is either an employer running it in-house under the exemption or a cap someone has chosen. It is not a tax rule, and it does not stop a scheme provider offering a more expensive bike.

What it saves in 2026/27

The saving is the tax and National Insurance that would have been due on the salary given up. At 2026–27 rates — income tax bands from GOV.UK (“Basic rate £12,571 to £50,270 20% Higher rate £50,271 to £125,140 40% Additional rate over £125,140 45%”) and employee National Insurance of 8% on earnings in the main band and 2% above it — the rates are:

Why the government’s own table says 32%The DfT guidance was last updated in 2019, and its examples show “Saving at 32% (20% Income Tax and 12% NIC)” and “Employers’ NIC Saving (13.8%)”. It says itself that “The guidance reflects the tax and legal position at the time of publication.” At 2026–27 rates the basic-rate figure is 28% and the employer figure 15%. Scottish taxpayers have different income tax bands, so their figures differ.

Those percentages apply to the hire cost the salary sacrifice covers. If the employee later buys the bike, that purchase is a separate payment from taxed pay, covered below.

Electric bikes

“Electrically assisted pedal cycles (EAPCs) are covered by the exemption.” The DfT guidance agrees: “An Electrically Assisted Pedal Cycle (EAPC) can be included under the scheme”. The bike has to be a pedal cycle that meets the electric bike rules, not a moped or a motor vehicle. With no tax limit on value, an e-bike above £1,000 is possible through a provider or an FCA-authorised employer.

The end of the hire

The scheme only works if ownership never passes during the hire, and the guidance is strict about how the end is handled: “There must be no option, whether express or implied, as part of, or alongside the initial hire agreement for the employee to purchase the cycle or equipment at the end of the hire agreement.” When the hire ends, the choices are “Option 1: extend the hire agreement; Option 2: return the cycle and equipment; Option 3: buy the cycle and equipment under a separate agreement entered into at the time”.

If the employee buys, the price matters: “as long as any payment that the employee makes for the cycle is equal to or more than the market value, there will be no tax charge under the employment income rules.” “If the employee pays less than market value, the difference will be taxable as employment income.” To avoid arguing about second-hand values, HMRC publishes percentages of the original price that it will accept:

“This approach cannot be used for cycles with special value” — antique, hand-built or otherwise unusual bikes need a real valuation. And if the bike is simply given away: “If you give your employee the cycle without them paying for it, then this is a taxable benefit in kind, and should be reported on form P11D.”

For employers setting one up

• Offer it to all employees; nobody has to take a bike, but no group can be excluded.
• Decide how it is run: in-house under the £1,000 exemption, in-house with FCA authorisation, or through a provider.
• Check the sacrifice does not take anyone below the National Minimum Wage.
• Keep any purchase option out of the hire agreement; offer it separately at the end, if at all.
• Use HMRC’s table, or a proper valuation, for any end-of-hire sale.
• Recalculate the savings figures you publish to staff each April.

Commuting help by loan instead of hire is on season ticket loans; car-based salary sacrifice is on salary sacrifice car schemes; business journeys by bike are paid at 20p a mile on HMRC mileage rates. This page quotes the sources below as read on 26 October 2026; the savings rates are recalculated from the National Insurance and income tax figures every time this site is built.

Common questions