Cycle to Work Scheme for Limited Company Directors: Complete UK Guide

The cycle to work scheme lets you get a bike and equipment through your limited company while saving up to 42% compared to buying personally. For directors, the setup is straightforward - your company provides the bike, you sacrifice salary to cover it, and you pay significantly less thanks to savings on income tax and National Insurance.

This guide covers exactly how the scheme works for limited company directors, the tax savings you can expect, how to set it up, and what happens when the hire period ends.

How the Cycle to Work Scheme Works

The cycle to work scheme is a government-backed initiative that allows employers to provide bicycles and cycling equipment to employees as a tax-free benefit. For limited company directors, you are both the employer and the employee, which makes the setup simpler.

Here is the basic structure:

1. Your company purchases or leases a bike and cycling equipment
2. You salary sacrifice an amount to cover the cost over 12-18 months
3. The sacrifice comes from your gross salary, before tax and NI
4. At the end of the hire period, you can purchase the bike at a fair market value

The savings come from the fact that you are effectively paying for the bike with pre-tax income rather than post-tax income.

The Technical Setup

Your company enters into an arrangement (typically with a cycle to work provider) to provide you with a bike. You then agree to reduce your gross salary by a set amount each month in exchange for the use of the bike.

This is a salary sacrifice arrangement - you give up part of your salary in return for a non-cash benefit.

Tax Savings Calculation

The savings from cycle to work come from two sources: income tax and National Insurance contributions.

How Much You Save

When you sacrifice salary for a bike, you avoid:

• Income tax at your marginal rate (20%, 40%, or 45%)
• Employee National Insurance at 8% (on earnings between £12,570 and £50,270) or 2% above that

Your company also saves:

• Employer National Insurance at 15%

Worked Example: £1,200 Bike

Let us say you want a bike and equipment costing £1,200. You sacrifice £100 per month for 12 months.

Without cycle to work (buying personally):

With cycle to work (salary sacrifice):

That is a 48% saving for a higher-rate taxpayer. The bike effectively costs you £624 instead of £1,200.

Savings by Tax Band

Note: The additional rate saving is slightly lower because employee NI drops to 2% above £50,270.

Company Savings

Your company also benefits:

• Employer NI saved: 15% of the sacrificed amount
• Corporation Tax: Lease costs are deductible

On a £1,200 bike, your company saves £180 in employer NI plus around £300 in Corporation Tax (depending on how the scheme is structured).

Director Eligibility and Requirements

As a limited company director, you can use the cycle to work scheme if you meet certain conditions.

Salary Sacrifice Requirements

For a valid salary sacrifice arrangement:

1. You must have a salary - Directors who only take dividends cannot use salary sacrifice
2. Salary must remain above National Minimum Wage - You cannot sacrifice below the NMW threshold
3. The arrangement must be genuine - Documented and consistent

Minimum Salary Considerations

Many directors pay themselves a salary around the NI threshold (currently £12,570 per year or £1,047.50 per month). At this level, there is limited room for salary sacrifice.

Example:

• Monthly salary: £1,047.50
• National Minimum Wage (21+): £12.71/hour x 160 hours = £2,033.60
• Since your salary is below NMW, you technically have no room to sacrifice

However, the NMW calculation is based on actual hours worked. If you work fewer hours (say 40 hours per month), your effective hourly rate is higher, leaving room for sacrifice.

The practical approach for most directors is to temporarily increase salary to accommodate the sacrifice, then reduce it back afterwards.

Documentation Required

Your company should have:

• A cycle to work policy document
• A salary sacrifice agreement signed by you
• Evidence of the hire arrangement (provider agreement or internal documentation)

Most cycle to work providers handle this paperwork for you.

Setting Up a Scheme

There are two ways to set up cycle to work for your limited company: use a scheme provider or run it yourself.

Option 1: Use a Scheme Provider

The easiest approach. Providers like Cyclescheme, Cycle Solutions, Green Commute Initiative, and others handle all the administration.

How it works:

1. Register your company with the provider
2. Get a certificate or voucher for the bike value
3. Redeem at a participating bike shop
4. Provider invoices your company (or you pay monthly)
5. You sacrifice salary each month

Pros:

• All paperwork handled
• Wide network of bike shops
• Clear end-of-hire process
• Consumer credit exemption (no need for FCA authorisation)

Cons:

• Provider takes a fee (typically 5-10% of bike value)
• Limited to participating retailers
• Some schemes have value limits

Option 2: Run It Yourself

Your company can provide a bike directly without using an external provider.

How it works:

1. Company purchases or leases a bike
2. You sign a hire agreement with the company
3. Salary sacrifice covers the cost
4. At the end, you buy the bike at fair market value

Pros:

• No provider fees
• Buy from any retailer
• More flexibility on equipment

Cons:

• More paperwork
• Need to handle the hire agreement properly
• May need consumer credit licence if hire period exceeds 12 months and value exceeds £30,000 (rarely relevant)

For most directors, using a scheme provider is simpler and avoids any compliance headaches.

Scheme Providers

Here are the main cycle to work providers in the UK:

The "unlimited" schemes are particularly useful for e-bikes, which often exceed traditional limits.

What Can You Include?

The cycle to work scheme covers bicycles and cycling safety equipment.

Covered Items

• Bicycles (including e-bikes)
• Helmets
• Lights (front and rear)
• Locks
• Bells
• Mirrors
• Mudguards
• Panniers and bags
• Reflective clothing
• Cycling clothing (if primarily for safety)
• Bike maintenance tools
• Child seats (for commuting with children)

Not Covered

• GPS computers (unless integrated safety features)
• General clothing
• Sports equipment
• Turbo trainers (debatable - some schemes include them)
• Car racks

Equipment Bundles

Most bike shops offer cycle to work bundles that include a bike plus essential accessories (helmet, lock, lights). This is a good way to maximise the value of your certificate.

Electric Bikes (E-Bikes)

E-bikes are fully eligible for the cycle to work scheme and have become increasingly popular given their higher price points.

E-Bike Eligibility

To qualify, an e-bike must:

• Have a motor that assists but does not replace pedalling
• Have a maximum assisted speed of 15.5mph (25km/h)
• Have a maximum motor power of 250 watts
• Not have a throttle (pedal assistance only)

These are the standard requirements for an "electrically assisted pedal cycle" (EAPC) in the UK.

Higher Value Schemes

Traditional cycle to work had a £1,000 limit, but this was removed in 2019. Many providers now offer unlimited schemes, making e-bikes that cost £3,000-£6,000+ accessible through cycle to work.

E-Bike Tax Savings Example

A £4,000 e-bike for a higher-rate taxpayer:

You effectively get a £4,000 e-bike for around £2,080 - a 48% saving.

What Happens at the End of the Cycle to Work Scheme?

At the end of the hire period (usually 12 to 18 months), your company still owns the bike. You then choose between buying it at fair market value, extending the hire, or handing it back. What you cannot do is agree up front that you will own the bike for free, or for a token price, at the end. That is the one mistake that breaks the tax-free treatment.

Why you cannot build ownership into the deal

HMRC's tax and National Insurance exemption covers bikes that are loaned or hired to an employee. HMRC's guidance says the exemption only applies where no ownership transfers, and ceases if ownership transfers to the employee. It also says the exemption does not apply if the agreement includes an automatic transfer of ownership at the end of the hire period from the outset.

So the structure has to be: you hire the bike for the scheme period, and when it ends you are offered the chance to buy it. Whether you take it is a separate decision made at the end.

Option 1: buy the bike at fair market value

If you buy the bike, the price should be its market value on the day of transfer. HMRC explains the tax position:

• Where ownership moves after a period of exempt use, the transfer may count as earnings, or otherwise is a benefit valued at the market value at the date of transfer.
• Where a bike is transferred for a nominal amount, such as 5% to 10% of the original retail price, the employee is taxed on the difference if the market value is higher.
• Any charge is reported on the P11D, and only Class 1A National Insurance is due on it.

The HMRC fair market value table

To avoid arguing about valuations, HMRC publishes an optional table of acceptable disposal values as a percentage of the original price. If you pay at least the table amount, HMRC accepts it as the correct value for employment income purposes.

Source: HMRC Employment Income Manual, EIM21667a.

The conditions for using the table:

• The bike must have qualified for the cycle to work exemption throughout the period since it was first provided, and its main use must have been travel between home and a workplace, or between workplaces.
• It cannot be used for bikes with special value, such as antique, collectable or individually hand-built specialist cycles.
• It works for widely available bikes without special features, whatever the original cost.
• You can use a lower value, but HMRC may challenge it. You would need evidence such as photos of the bike's condition, how much it was used and what similar bikes sold for.

Example: a £1,200 bike bought after 12 months. The original price is above £500, so the table gives 25%. You pay £1,200 x 25% = £300 to own the bike outright. This payment comes from your after-tax money.

If you keep the bike for longer and buy it later, the percentage is lower. The same £1,200 bike is 21% (£252) at 18 months and 17% (£204) at two years.

Option 2: extend the hire

Some providers let you extend the hire period for a small monthly fee. You can then buy later, at the lower percentage that applies to the bike's age at that point.

Option 3: return the bike

You can hand it back to your company or the scheme provider. That is rare in practice, because the purchase price is usually modest.

Total cost calculation

Let us calculate the true total cost of a £1,200 bike:

That is still a 23% saving compared to buying the bike for £1,200 with post-tax income.

For a £4,000 e-bike:

A 23% saving on a more expensive bike is £920 in your pocket.

Limits and Maximums

No Upper Limit (But Practical Considerations)

Since 2019, there is no legal upper limit on cycle to work schemes. However:

• Some scheme providers cap values (often £5,000-£10,000)
• Your salary must support the sacrifice
• Higher values mean larger FMV payments at the end

National Minimum Wage Floor

You cannot sacrifice salary below NMW. For directors with low salaries, this limits how much you can sacrifice.

Employer Limits

Your company can set its own limits on the scheme. Many small company directors set a reasonable maximum (e.g., £5,000) based on their salary structure.

Common Mistakes

1. Insufficient Salary to Sacrifice

If you only pay yourself dividends, you cannot use salary sacrifice. You need actual employment income.

Solution: Pay yourself a salary sufficient to cover the sacrifice amount, at least during the hire period.

2. Not Documenting the Arrangement

HMRC could challenge an informal arrangement. Have proper paperwork in place.

Solution: Use a scheme provider (they handle documentation) or create formal hire agreements.

3. Forgetting the FMV Payment

The bike is not free at the end. You still need to pay fair market value to own it.

Solution: Budget for the FMV payment: 25% of the original price after one year for a bike costing £500 or more (18% under £500), per HMRC's table.

4. Including Non-Qualifying Items

GPS computers, general clothing, and non-safety items do not qualify.

Solution: Stick to bikes and genuine safety equipment.

5. Sacrificing Below Minimum Wage

Your effective hourly rate must stay above NMW after sacrifice.

Solution: Calculate your hours worked and ensure compliance.

6. Treating It as a Loan

Cycle to work is a hire arrangement, not a loan. The company owns the bike during the hire period.

Solution: Understand the legal structure - you are hiring the bike from your company.

7. Not Considering the Break-Even

If you do not intend to cycle regularly, the scheme may not be worth the hassle.

Solution: Be realistic about your usage before committing.

Frequently Asked Questions

Can I use cycle to work if I only take dividends?

No. Salary sacrifice requires employment income. If you only take dividends, you cannot participate in the scheme. You would need to start paying yourself a salary to use cycle to work.

Is there an upper limit on what bike I can get?

There is no legal upper limit since 2019. However, individual scheme providers may set limits, and your salary must support the sacrifice amount. Premium e-bikes costing £5,000-£8,000 are regularly purchased through the scheme.

Can I use the bike for personal trips?

Yes, occasionally. You do not have to use the bike exclusively for commuting. But the bike should mainly be used to get between home and a workplace: HMRC's fair market value table can only be used for a bike whose main use was that travel, and a bike used mainly for leisure risks a different valuation at the end of the scheme.

What happens if I leave the company before the hire period ends?

You typically have two options: pay the outstanding balance from your final salary or pay off the remaining amount personally. Check your scheme provider's terms for specific arrangements.

Can I get multiple bikes through the scheme?

Generally, yes, but not simultaneously. Once one hire period ends, you can start another. Some employers restrict this, but as a director of your own company, you set the policy.

Do I need to use the bike for commuting to get the tax benefit?

You should. The exemption exists for cycles used for journeys between home and work or between workplaces, and HMRC says its fair market value table is only for a bike whose main use has been that travel. Some leisure use is not a problem. A bike that is rarely used to commute is.

Can my spouse get a bike through my company?

Yes, if your spouse is a genuine employee of the company. They would enter their own salary sacrifice arrangement. This allows a family to get multiple bikes through one company.

Is cycle to work worth it for expensive e-bikes?

Absolutely. The percentage savings are the same regardless of bike price. A 48% saving on a £5,000 e-bike is £2,400 - a substantial amount. The FMV payment at the end (around £1,250) still leaves you significantly ahead.

What if the bike is stolen during the hire period?

The bike belongs to your company during the hire period, so company insurance should cover it. Many scheme providers offer optional insurance. Either way, check your coverage before relying on it.

Can I claim mileage for cycling on business trips?

Yes, but separately from cycle to work. HMRC allows 20p per mile for business cycling. This is in addition to any cycle to work savings - they cover different things (buying the bike vs business mileage).

How AccountsOS Helps

Managing cycle to work through your limited company involves salary sacrifice calculations, documentation, and tracking. AccountsOS simplifies this.

Salary Sacrifice Tracking - Set up the monthly sacrifice and see exactly how much tax and NI you are saving throughout the scheme.

End-of-Scheme Reminders - Get notified when your hire period is ending so you do not miss the FMV purchase window.

Documentation Storage - Keep your scheme agreements, certificates, and FMV calculations in one place for HMRC compliance.

Tax Savings Calculation - Ask "How much am I saving on my cycle to work scheme?" and get an instant breakdown of income tax, employee NI, and employer NI savings.

Integration with Payroll - The salary sacrifice is automatically reflected in your payroll calculations.

The cycle to work scheme is one of the simplest tax savings available to limited company directors who want a bike. The setup takes minimal effort (especially with a scheme provider), the savings are substantial (28-48% depending on your tax band), and you end up with a bike you can keep.

For e-bikes in particular, the savings can run into thousands of pounds. If you have been considering an electric bike but balking at the £3,000-5,000 price tags, cycle to work makes them genuinely affordable.

Ready to take control of your company finances? Try AccountsOS free for 14 days - no card required.