How salary sacrifice for bikes reduces student loan repayments while saving tax, NI, and up to 42% on cycling costs
The Cycle to Work scheme lets you get a bike and equipment through salary sacrifice, saving income tax (20-45%), National Insurance (12%), and—crucially for graduates—student loan repayments (6-9%). A basic-rate taxpayer with a Plan 2 loan buying a £1,000 bike saves £410 total: £200 tax + £120 NI + £90 student loan. You pay only £590 for a £1,000 bike, a 41% discount.
This government scheme encourages commuting by bike for health and environmental benefits. Your employer purchases the bike, you hire it via salary sacrifice over 12-18 months, then typically purchase it for a nominal fee at the end. The salary sacrifice reduces your gross income for all PAYE purposes, meaning every deduction—including student loans—is calculated on the lower amount. For the 85% of UK employees whose employer offers the scheme, it's one of the most valuable benefits available. This government scheme encourages commuting by bike for health and environmental benefits. Your employer purchases the bike, you hire it via salary sacrifice over 12-18 months, then typically purchase it for a nominal fee at the end. The salary sacrifice reduces your gross income for all PAYE purposes, meaning every deduction—including student loans—is calculated on the lower amount. For the 85% of UK employees whose employer offers the scheme, it's one of the most valuable benefits available.
This guide explains how the Cycle to Work scheme works, calculates exact savings including the student loan benefit across different plans and salaries, covers what happens at end of hire period, and provides decision-making frameworks for whether to use the scheme, how much to spend, and which bike to choose. Whether you're considering your first scheme bike or wondering if it's worth using again, understanding the student loan interaction reveals hidden value most cyclists miss. This guide explains how the Cycle to Work scheme works, calculates exact savings including the student loan benefit across different plans and salaries, covers what happens at end of hire period, and provides decision-making frameworks for whether to use the scheme, how much to spend, and which bike to choose. Whether you're considering your first scheme bike or wondering if it's worth using again, understanding the student loan interaction reveals hidden value most cyclists miss.
The Cycle to Work scheme is a tax-exempt benefit allowing employees to obtain bikes and cycling equipment through salary sacrifice, administered via third-party providers like Cyclescheme, Halfords, Evans Cycles, or directly by employers.
Typical bike value:
£500-£2,000 (some schemes allow up to £10,000)
Hire period:
Usually 12 months, some offer 18-36 months
Typical savings:
25-42% depending on tax rate and loan status
What's included:
Bike + accessories (helmet, lights, lock, clothing)
Employer participation:
~85% of UK employers offer scheme
Usage requirement:
50%+ journeys must be work-related
Employer must offer scheme:
Check with HR. Most medium-large employers offer through providers like Cyclescheme. Small employers can set up directly.
Must be employee (not self-employed):
Scheme only works via employer PAYE. Contractors and self-employed cannot participate.
Bike must be mainly for commuting:
HMRC requires 50%+ of journeys are work-related (commuting, work trips). Personal use allowed, but must be secondary.
Sufficient salary after sacrifice:
Post-sacrifice salary must exceed National Minimum Wage. Typically need to earn £22,000+ to participate meaningfully.
❌ "I'm buying a bike interest-free"
Actually, you're hiring a bike via salary sacrifice, saving tax/NI/loan on the hire payments. At end, there's a process to transfer ownership (usually small fee).
❌ "The bike must be basic/cheap"
No HMRC limit. Some schemes allow up to £10,000. You can get high-end road bikes, e-bikes, cargo bikes—anything classified as a bicycle.
❌ "I can only use it for commuting"
Must be mainly for commuting (50%+), but personal use is allowed and expected. Weekend rides, leisure cycling all fine.
❌ "I can only do this once"
You can use scheme every 12 months (some employers have different rules). Many people get multiple bikes over their career.
The Cycle to Work scheme operates as a hire agreement with salary sacrifice. Here's the complete process:
Check Employer Scheme
Contact HR to confirm participation. Get details: which provider (Cyclescheme, Halfords, etc.), maximum value, hire period length (usually 12 months).
Choose Bike and Equipment
Select bike and accessories (helmet, lights, lock, clothing, etc.) from participating retailers. Total package value becomes your hire amount. Get quote letter from retailer.
Apply Through Employer
Submit application with quote. Employer reviews and approves (usually straightforward). Sign hire agreement—legal document stating you're hiring equipment for work purposes.
Submit application with quote. Employer reviews and approves (usually straightforward). Sign hire agreement—legal document stating you're hiring equipment for work purposes.
Employer Purchases Bike
Employer (or scheme provider on their behalf) buys bike and equipment. You receive certificate/voucher to collect bike from retailer. Pick up bike—it's now officially hired to you.
Employer (or scheme provider on their behalf) buys bike and equipment. You receive certificate/voucher to collect bike from retailer. Pick up bike—it's now officially hired to you.
Salary Sacrifice Begins
Monthly deductions start from next payslip. Your gross salary reduces by hire amount ÷ 12 months (or 18/36 if longer hire). This reduced salary is used for all PAYE calculations: tax, NI, student loan.
Use Bike During Hire Period
Ride bike for 12 months (or agreed period). Technically you're hiring it; employer owns it. Use mainly for work journeys (commuting, work trips). Personal use permitted.
Ride bike for 12 months (or agreed period). Technically you're hiring it; employer owns it. Use mainly for work journeys (commuting, work trips). Personal use permitted.
End of Hire: Transfer Ownership
After hire period, several options: (a) Pay fair market value (typically 3-25% of original value depending on bike age), (b) Extend hire for free for 3-4 years then transfer for nominal fee (£1), or (c) Return bike. Most people choose option (b).
Month 0 (January): Application and Setup
Months 1-12 (Feb-Jan): Salary Sacrifice Period
Month 13 (Feb, Year 2): End of Initial Hire
Month 49 (Feb, Year 5): Final Ownership
Total cost: £590 out of pocket (see calculations below) + £1 final fee = £591 for £1,000 bike
Savings: £409 (41%) via tax, NI, and student loan reductions
It's a hire agreement, not a purchase:
This is crucial for tax treatment. HMRC allows tax-free benefit because it's technically equipment hire for work purposes. You don't own the bike during initial hire period.
Insurance during hire:
You're responsible for bike even though employer owns it. Get home insurance or cycle insurance. If bike is stolen/damaged, you still owe salary sacrifice payments.
If you leave employer mid-hire:
Usually you can pay off remaining balance (at reduced rate with tax/NI savings applied) or return bike. Check your hire agreement. Some schemes let you transfer to new employer if they participate.
VAT and employer savings:
Employers can reclaim VAT on bike purchase and save 13.8% employer NI on your sacrifice amount. Some employers pass part of this back as additional value (better bike allowance).
The £1,000 (or whatever limit) can include:
✓ Always Included:
✓ Usually Included:
✗ Never Included:
Pro tip: Maximize the package value with accessories. Helmet, lights, lock, bag, and clothing can easily add £200-400 to your package, all with same tax/NI/loan savings.
The student loan reduction is the hidden benefit most people don't realize when using Cycle to Work. By reducing your gross salary, you lower your student loan repayments for the year. The student loan reduction is the hidden benefit most people don't realize when using Cycle to Work. By reducing your gross salary, you lower your student loan repayments for the year.
Assuming you're above the threshold and buying a £1,000 bike via 12-month sacrifice: Assuming you're above the threshold and buying a £1,000 bike via 12-month sacrifice:
| Loan Plan | Threshold | Repayment Rate | Saving on £1,000 |
|---|---|---|---|
| Plan 1 | £22,015 | 9% | £90 (9% of £1,000) |
| Plan 2 | £27,295 | 9% | £90 (9% of £1,000) |
| Plan 4 | £31,395 | 9% | £90 (9% of £1,000) |
| Plan 5 | £25,000 | 9% | £90 (9% of £1,000) |
| Postgraduate | £21,000 | 6% | £60 (6% of £1,000) |
Note: These savings apply only if your income (after sacrifice) remains above the threshold. If the sacrifice drops you below threshold, you save even more—see examples below.
Buying £1,000 bike via 12-month sacrifice:
Your gross salary reduces by: £1,000 over the year (£83.33/month)
This reduces your deductions by:
• Income tax: £1,000 × 20% = £200 saved
• National Insurance: £1,000 × 12% = £120 saved
• Student loan: £1,000 × 9% = £90 saved
Total deductions saved: £410
Your actual cost: £1,000 - £410 = £590
You pay £590 for a £1,000 bike (41% saving)
Without student loan, you'd save only £320 (32%). The loan adds £90 extra benefit.
| Your Status | Tax Rate | NI Rate | Loan Rate | Total Saving % |
|---|---|---|---|---|
| Basic rate, no loan | 20% | 12% | 0% | 32% |
| Basic rate, Plan 1/2/4/5 | 20% | 12% | 9% | 41% |
| Basic rate, Postgrad | 20% | 12% | 6% | 38% |
| Basic rate, Undergrad + Postgrad | 20% | 12% | 15% (9%+6%) | 47% |
| Higher rate, no loan | 40% | 2% | 0% | 42% |
| Higher rate, Plan 1/2/4/5 | 40% | 2% | 9% | 51% |
Key insight: Having a student loan increases your effective savings rate by 6-15 percentage points depending on your loans. This makes the scheme even more attractive for graduates.
If your salary sacrifice drops you below the student loan threshold, you eliminate that year's loan repayments entirely:
Example: Earning £28,000 with Plan 2 loan
Without scheme:
• Income: £28,000
• Plan 2 threshold: £27,295
• Above threshold by: £705
• Annual loan repayment: £63 (£705 × 9%)
With £1,000 bike sacrifice:
• Income: £27,000 (£28,000 - £1,000)
• Below threshold by: £295
• Annual loan repayment: £0
Total benefit: £200 tax + £120 NI + £63 loan eliminated = £383 saved
You pay £617 for a £1,000 bike (38.3% saving) plus completely avoid loan repayments this year!
Real-world examples showing exact costs and benefits across different salaries and bike values:
Setup:
If Buying Bike Normally (No Scheme):
Pay bike shop: £1,000 from net income
Annual deductions on £35,000:
• Tax: £4,486
• NI: £2,214
• Student loan: £693
Net pay: £27,607
After buying bike: £26,607 available
Via Cycle to Work Scheme:
Gross salary: £34,000 (£35k - £1k sacrifice)
Annual deductions on £34,000:
• Tax: £4,286
• NI: £2,094
• Student loan: £603
Net pay: £27,017
Bike paid via sacrifice
Available: £27,017
Better off by: £410/year
Savings: £200 tax + £120 NI + £90 student loan = £410
Effective bike cost: £590 (paid £590 for £1,000 bike)
Saving percentage: 41%
Setup:
Tax Rate Consideration:
At £50,000, you're just in higher rate band (starts £50,270)
At £50,000, you're just in higher rate band (starts £50,270)
Personal allowance: £12,570
Taxable income: £37,430
• £37,430 at 20% = £7,486
Total tax: £7,486
With £2,000 Sacrifice:
New gross: £48,000
Taxable: £35,430
All at basic rate: £35,430 × 20% = £7,086
Savings breakdown:
• Tax saved: £400 (all at 20% basic rate)
• NI saved: £240 (12% of £2,000)
• Student loan saved: £180 (9% of £2,000)
Total saved: £820
Effective e-bike cost: £1,180 (paid £1,180 for £2,000 e-bike)
Saving: 41% (same as basic rate because sacrifice kept you in basic rate band)
Without student loan, would save only £640 (32%). Loan adds £180 extra benefit.
Setup:
Without Scheme:
Income: £26,000
Plan 5 threshold: £25,000
Above by: £1,000
Loan repayment: £90/year (£1,000 × 9%)
With £500 Sacrifice:
Income: £25,500 (£26k - £500)
Above threshold by: £500
Loan repayment: £45/year (£500 × 9%)
Loan saving: £45
Total savings on £500 bike:
• Tax: £100 (20% of £500)
• NI: £60 (12% of £500)
• Student loan: £45 (reduced repayment)
Total: £205 saved—pay £295 for £500 bike (41% saving)
Key point: Even with lower salary and smaller bike value, percentage savings remain consistent at 41% for basic rate taxpayers with loans.
Setup:
Savings Calculation:
On £3,000 sacrifice:
• Tax: £600 (20% of £3,000)
• NI: £360 (12% of £3,000)
• Plan 2 loan: £270 (9% of £3,000)
• Postgrad loan: £180 (6% of £3,000)
Total savings: £1,410
Pay £1,590 for £3,000 cargo bike
Saving: 47% (higher due to dual loan repayments)
Without any student loans, would save only £960 (32%)
Dual loans add £450 extra benefit—makes expensive cargo bike more affordable
Strategic insight: If you have both undergraduate and postgraduate loans (15% repayment rate), the scheme delivers 47% savings. This makes higher-value bikes like e-bikes and cargo bikes particularly attractive.
Choosing the right bike value and package maximizes your benefit. Here's how to think about different price points:
Best for:
Your cost (basic rate + loan):
£295-£470 out of pocket
Monthly: £25-40 deduction from payslip
Example bikes: Hybrid bikes from Decathlon, Halfords Carrera, basic road bikes. Include helmet, lights, lock in package to maximize value.
Best for:
Your cost (basic rate + loan):
£590-£885 out of pocket
Monthly: £49-74 deduction from payslip
Example bikes: Better hybrid bikes (Trek FX, Specialized Sirrus), entry-level road bikes, gravel bikes. Sweet spot for most commuters—good quality without being excessive.
Best for:
Your cost (basic rate + loan):
£1,180-£1,770 out of pocket
Monthly: £98-148 deduction from payslip
Example bikes: E-bikes (Specialized Turbo, Cube electric), high-end road bikes (Canyon, Boardman), cargo bikes (Tern, Urban Arrow). The 41% saving makes these expensive bikes significantly more accessible.
Best for:
Your cost (basic rate + loan):
£2,360-£5,900 out of pocket
Monthly: £197-492 deduction (18-month term recommended)
Note: Some schemes cap at £5,000-£10,000. Check your employer's limit. Saving £4,100 on a £10,000 electric cargo bike makes a real difference. Consider 18 or 36-month hire periods to reduce monthly deductions.
Don't just buy the bike—maximize your package value with accessories (all with same 41% savings):
Essential Safety (£100-200):
Comfort & Practicality (£150-300):
Tech & Extras (£100-300):
Upgrades (£100-400):
Strategy: If you're getting a £1,000 bike and scheme allows £1,500, add £500 worth of equipment. You pay only £295 for that £500 of gear (41% saving). It's the best time to invest in quality accessories.
After your 12-month (or longer) hire period ends, you need to formalize ownership. Understanding the options and tax implications ensures you make the best choice.
Option 1: Pay Fair Market Value Immediately
Example: £1,000 bike, 12-month hire → Pay £250 to own bike now
Downside: Significant payment reduces your effective savings from 41% to around 24%
Option 2: Extended Hire Period (Recommended)
Example: £1,000 bike, 12-month hire + 36-month extension → Pay £1 after 4 years total
Benefit: Maintains full 41% savings, bike is essentially yours from year 1
Option 3: Return Bike
Not recommended unless bike is genuinely unwanted
Nearly everyone chooses extended hire because:
| Age of Bike | Fair Market Value % | Example (£1,000 bike) |
|---|---|---|
| 12 months | 25% | £250 |
| 18 months | 21% | £210 |
| 24 months | 17% | £170 |
| 36 months | 10% | £100 |
| 48 months | 5% | £50 |
| 60 months+ | Nominal (£1-25) | £1-25 |
Note: Most schemes structure as 12-month hire + 36-month extension = 48 months total, then £25-50 final payment or further extension to reach nominal value.
Your rights:
Continue using bike exactly as before. Unlimited use for commuting and personal cycling. No restrictions.
Your responsibilities:
Continue maintaining bike. If lost/stolen, you may owe final payment or replacement cost (check scheme terms). Get insurance.
Employer's role:
Still technically owns bike but has no involvement. Won't chase you for it. Administrative ownership only.
If you leave employer:
Usually can pay current fair market value (e.g., 17% if 24 months old) or continue extension if employer agrees. Check your agreement.
Real situations showing how the scheme works in practice:
Situation:
Alex, 25, starting new job in city. 4-mile commute. Currently spending £140/month on bus (£1,680/year). Earning £32,000, Plan 5 loan £45,000 balance. Considering Cycle to Work for £750 bike package.
Analysis:
Financial outcome:
• Month 1-12: Save £140 bus, pay £37 bike = £103/month better off
• Year 1: £1,236 ahead vs continuing bus
• Year 2+: £1,680/year ahead (no bus, no bike payments)
• Plus: fitness benefits, faster commute, environmental impact
Decision: Clear win. Gets £750 bike for £442.50 AND saves £1,680/year on bus. Payback in 4 months.
Situation:
Sarah, 34, has 12-mile commute with hills. Currently driving (fuel + parking = £250/month). Earning £48,000, Plan 2 loan. Considering £2,200 e-bike to make cycling viable.
Analysis:
Financial outcome:
• Months 1-18: Save £178/month = £3,204 total
• Months 19+: Save £250/month = £3,000/year
• E-bike "pays for itself" in 7 months vs driving
• Plus: fitness, no parking stress, climate benefit
Decision: E-bike makes long, hilly commute feasible. Combined with £902 scheme savings and eliminating £3,000/year driving costs, it's compelling.Decision: E-bike makes long, hilly commute feasible. Combined with £902 scheme savings and eliminating £3,000/year driving costs, it's compelling.
Situation:
Mike got £800 commuter bike via scheme 3 years ago (still has it). Now considering scheme again for £1,500 weekend road bike. Earning £38,000, Plan 2 loan.
Considerations:
Decision: Probably okay if:
Alternative: Wait until old bike needs replacing, then get £2,500 package (one quality road bike + accessories).
Situation:
Emma and Tom, two young children, school 1.5 miles away. Currently short car journeys for school run. Tom's employer offers up to £5,000 scheme. Considering £4,500 electric cargo bike. Tom earns £52,000, Plan 2 loan + Postgrad loan.
Analysis:
Strategic benefits:
• £4,500 cargo bike for £1,485 out of pocket (67% savings with dual loans!)
• Can transport two kids + shopping
• School run: faster than driving in traffic
• Saves fuel, reduces car mileage
• Makes cycling practical for family transport
Decision: Excellent use case. High-value bike becomes affordable through massive savings. Cargo bikes are expensive (£4k-£8k) but scheme makes them viable. The 67% savings with dual loans is exceptional.
Use this framework to decide whether to use the scheme and how much to spend:
Step 1: Verify Eligibility
✓ Employer offers Cycle to Work (check with HR)
✓ You're an employee (not self-employed/contractor)
✓ You'll use bike mainly (50%+) for commuting/work travel
✓ Post-sacrifice salary exceeds National Minimum Wage
Step 2: Calculate Your Savings Rate
Your marginal rates:
• Tax rate: 20% (basic) or 40% (higher) or 45% (additional)
• NI rate: 12% (basic) or 2% (higher)
• Student loan: 9% (Plans 1/2/4/5) or 6% (Postgrad) or 15% (both)
Total savings rate = Sum of above
Example: 20% + 12% + 9% = 41% savings
Step 3: Determine Budget
Consider:
• Commute distance (longer = justify more expensive bike)
• Terrain (hills = justify e-bike)
• Current transport costs (car/train savings)
• Monthly sacrifice comfort: Can you afford £50/month? £100/month?
Rule of thumb:
Spend what you'd spend if buying normally, but know you're getting 41% discount
Step 4: Choose Bike and Equipment
• Match bike to commute needs (don't over/under-buy)
• Match bike to commute needs (don't over/under-buy)
• Maximize accessories (helmet, lights, lock, clothing—all 41% off)
• Research bike shops: which accept your scheme?
• Test ride bikes before committing
Step 5: Apply and Sign Agreement
• Get quote letter from bike shop
• Submit via employer's scheme portal
• Read hire agreement carefully (leaving job clauses, insurance requirements)
• Collect bike with certificate once approved
Step 6: During Hire Period
• Insure bike (home insurance or dedicated cycle insurance)
• Maintain bike regularly
• Track work vs personal usage (aim for 50%+ work)
• Enjoy reduced salary sacrifice deductions on payslip
Step 7: End of Hire
• Choose extended hire (recommended): free 3-year extension, £1 final payment
• Alternative: pay fair market value (25%) to own immediately
• Never return bike unless genuinely don't want it
• Never return bike unless genuinely don't want it
Confirmed employer offers scheme and checked maximum value/terms
Calculated my savings rate (tax + NI + student loan) = typically 41%
Determined affordable monthly sacrifice amount (£50? £100? £200?)
Researched bikes suitable for my commute and tested them
Maximized equipment package (helmet, lights, lock, clothing, accessories)
Understand end-of-hire options (will choose extended hire for maximum savings)
Planned insurance (home insurance or dedicated cycle policy)
Honestly assessed: will use bike mainly (50%+) for work journeys?
By reducing your gross salary, you save income tax, National Insurance, AND student loan repayments simultaneously. A £1,000 bike costs you only £590 out of pocket. Combined with transport cost savings and health benefits, the scheme is one of the most valuable employee benefits for graduates with loans. If your employer offers it and you have any interest in cycling, it's worth using. By reducing your gross salary, you save income tax, National Insurance, AND student loan repayments simultaneously. A £1,000 bike costs you only £590 out of pocket. Combined with transport cost savings and health benefits, the scheme is one of the most valuable employee benefits for graduates with loans. If your employer offers it and you have any interest in cycling, it's worth using.
Most people underestimate the total benefit because they forget the student loan component. That extra 9% saving (6% for postgrad) often tips bikes from "maybe" to "definitely worth it"—especially for expensive e-bikes and cargo bikes that would otherwise be unaffordable.
UK Education Policy Specialist
With over 15 years of experience in UK education policy and student finance, Dr. Sharma founded Student Loan Calculator UK to help students navigate the complex world of student loans.