Overview
The Cycle to Work scheme in the UK allows employees to purchase a bicycle and cycling equipment through a salary sacrifice arrangement. By spreading the cost over a set period (typically 12 months), you benefit from tax and National Insurance (NI) savings, making the overall cost lower than purchasing outright. Here’s how we calculate your monthly payments and overall net cost based on your earnings and tax bracket.
How the Cycle to Work Scheme Works
When you participate in the Cycle to Work scheme, the payments are deducted from your gross salary (before tax and NI contributions), which reduces the amount of salary subject to income tax and National Insurance.
You pay for the bike and equipment over a period, and the exact net cost you pay each month will depend on your income tax rate and National Insurance contribution rate.
Calculating the Monthly Cost
Gross Salary Deduction
This is the amount you agree to sacrifice from your gross salary before tax and NI. For example, if the cost of your bicycle is £500 and you’re spreading this over 12 months, the monthly gross payment would be:
£500 ÷ 12 = £41.67 per month
Tax and National Insurance Savings
The savings you make are dependent on your income tax and NI rates, which vary based on your earnings. Below are the different scenarios for basic-rate, higher-rate, and additional-rate taxpayers.
Basic-Rate Taxpayer
Annual salary up to £50,270
Income Tax rate: 20%
National Insurance rate: 12%
Example Calculation
Monthly gross payment: £41.67
Tax savings (20%): £8.33
NI savings (12%): £5.00
Total monthly savings: £8.33 + £5.00 = £13.33
Net monthly cost: £41.67 - £13.33 = £28.34
Higher-Rate Taxpayer
Annual salary between £50,271 and £125,140
Income Tax rate: 40%
National Insurance rate: 2%
Example Calculation:
• Monthly gross payment: £41.67
• Tax savings (40%): £16.67
• NI savings (2%): £0.83
Total monthly savings: £16.67 + £0.83 = £17.50
Net monthly cost: £41.67 - £17.50 = £24.17
Additional-Rate Taxpayer
Annual salary above £125,140
Income Tax rate: 45%
National Insurance rate: 2%
Example Calculation:
• Monthly gross payment: £41.67
• Tax savings (45%): £18.75
• NI savings (2%): £0.83
Total monthly savings: £18.75 + £0.83 = £19.58
Net monthly cost: £41.67 - £19.58 = £22.09
Other Factors to Consider
Repayment period: Typically, repayment is spread over 12 months, but this can vary based on what your employer allows.
Salary adjustments: Keep in mind that reducing your gross salary may impact other benefits that are based on gross earnings, such as pensions or mortgage applications.
Summary of Savings Across Different Income Bands
Based on a bicycle of £500 spread over 12 months.
Income Band | Income Tax Rate | NI Rate | Monthly Gross Payment | Tax Savings | NI Savings | Net Monthly Cost |
Up to £50,270 | 20% | 12% | £41.67 | £8.33 | £5.00 | £28.34 |
£50,271 - £125,140 | 40% | 2% | £41.67 | £16.67 | £0.83 | £24.17 |
Over £125,140 | 45% | 2% | £41.67 | £18.75 | £0.83 | £22.09 |
FAQs
Will the Cycle to Work scheme affect my pension contributions?
Salary sacrifice can reduce your gross pay, which could affect salary-dependent benefits like pensions. Check with your employer or pension provider for details.
Can I include accessories in the scheme?
Yes, the scheme typically allows you to include safety equipment such as helmets, lights, and locks, within the total value of your bike purchase.
What happens if I leave my job before the end of the repayment period?
If you leave your job before fully repaying the bike, you will need to pay the remaining balance from your net salary (post-tax income).
For further details or to calculate your specific savings, contact your employer’s HR or benefits team.