Chancellor Rachel Reeves is preparing to introduce significant new HMRC tax rules that will impact workers using salary sacrifice schemes to purchase bicycles. The changes, expected to be announced in the Autumn Budget on November 26, will specifically target the popular cycle to work scheme.
What are the proposed changes?
The Labour Party Chancellor has drawn up plans to cut tax benefits for employees buying expensive manual and electric bicycles through salary sacrifice arrangements. According to the Financial Times, which spoke to individuals familiar with the budget preparations, Ms Reeves and HMRC will impose a new limit on how much can be spent on a bicycle through the scheme.
One government figure provided a clear rationale for the change, stating: “Cycle to work should be about helping ordinary commuters switch to greener travel, not giving tax breaks to high earners buying £4,000 e-bikes for weekend rides in the Surrey Hills. Taxpayers shouldn’t be footing the bill for luxury leisure.”
Industry reaction and potential consequences
The proposed cap has drawn criticism from within the cycling industry. Will Pearson, co-owner of London-based Pearson Cycles, a designer and retailer of high-end bikes, told the Financial Times that while any new limit would need to be set at a “sensible level,” it risks hindering progress in environmentally friendly travel.
“The Labour Party government should leave the scheme alone or, ideally, improve the incentives rather than restrict them,” he argued. “Customers are far more likely to consistently use their bikes if they are of a certain quality, reliable and efficient. This often comes at a higher price tag.”
Broader implications for salary sacrifice
The potential reforms are not limited to the cycle to work scheme. Recent rumours also suggest the chancellor could reduce the tax relief employees receive when contributing to their pension through salary sacrifice. It is estimated that such a move could cost the average worker around £210 per year.
Antonia Medlicott, managing director of Investing Insiders, warned of wider repercussions: “The chancellor risks undermining trust in the system, which could deter people from saving or push higher earners into more risky products as they look for alternative ways to save tax.”
The upcoming Autumn Budget on November 26 will provide the definitive details on these proposed HMRC tax rules and their full impact on salary sacrifice schemes.
