Cycle to Work Scheme

Fair Market Value

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Fair Market Value

Fair Market Value (FMV) is an HMRC term relating to the value of the cycle if it is transferred to the employee after the end of the hire period (as often happens).  FMV is calculated according to guidelines issued by HMRC, copied in the table below (for more information see HMRC documentation HERE):

There are three main things to note here:

  1. Under HMRC rules the tax exemption for C2W schemes cannot apply if there is an automatic transfer of ownership at the end of the scheme built in from the outset. In fact the Employer can’t even suggest that the Employee will have that option. However, employers  generally choose to offer this option and as long as the rules are followed there is no issue with HMRC if the the decision to transfer the cycle is taken at the end of the scheme period. Such a transfer would be subject to a seperate agreement between Employer and Employee.
  2. If a transfer takes place it can be at FMV, or for a lesser value. If transferred for full FMV it’s a simple transaction and there are no tax implications – there is no tax relief on the payment. If it is transferred for less than FMV, say a nominal sum, then it is treated as a Benefit in Kind. Tax would then be payable on the difference between the actual transfer value and FMV, i.e. 20% for normal rate taxpayers, 40% for higher rate.
  3. The FMV calculation – see the table below. Note that while the cycle and some accessories that may be fixed to it are subject to the FMV rules below, some items that may have been purchased under the scheme are not. e.g. clothing and footwear or other non-attached items are accepted by HMRC as ‘likely to be of lesser value’ at the end of the scheme term. See relevant HMRC document HERE.
The tables and explanations below give you the reasoning behind the sums. But if you just want the answer you can go to our Online Calculator to get an instant indication of costs and savings, including FMV. Click the ‘Calculate’ button to the right side of the page to go there.
Age of cycle Acceptable disposal value as % of original price
Original price < £500 Original price £500+
12 months 18% 25%
18 months 16% 21%
2 years 13% 17%
3 years 8% 12%
4 years 3% 7%
5years Negligible 2%
6 years Negligible Negligible


There are 3 main options at the end of the original scheme term of 12 or 18 months.

Option 1 – Employer keeps the cycle

This is the least common option. If  at the end of the hire period the Employer decides to keep the cycle for some reason, or the Employee doesn’t want to keep it, the Employer disposes of it in whatever way it chooses. By this stage the Employer has already recovered 100% of the cost, so there is no financial impact on them, other than whatever income they get from the sale.

Option 2 – cycle is transferred to the Employee at the end of the original scheme term

It is very common for the Employee to want to take ownership of the cycle at the end of the scheme term. In this case the Employer can choose to agree to transfer ownership of the cycle to the Employee, usually for a nominal sum (or £nil). That is treated as a taxable Benefit in Kind and the Employee then pays the tax on on the difference between that nominal sum and the appropriate FMV.

Example: Employer transfers ownership of a £1000 cycle at the end of 12 months for a nominal sum of say £20. The employee would be liable to pay tax on the value of the benefit. In this case  the benefit in kind = £230 (£250  from FMV table – £20 nominal sum). i.e. cost to Employee would be just the tax payable on £230, NOT the full £230.

Option 3 – Employer Extends Hire Term

A popular option is to extend the hire term. In this case the Employee can continue to hire the bike at no cost after the initial hire term. The Employee can choose to take a transfer of the cycle during that period, and it will be treated as a Benefit in Kind at the appropriate FMV. e.g. after 4 years the FMV would be only 3% of the original purchase price for a cycle originally costing less than £500, or 7% of a cycle of £500 or more. NB as noted above, the Employee only pays the tax on this amount – 20% or 40% of the FMV.


The example below is based on transfer of ownership after 12 months, and assumes the transfer payment is treated as a Benefit in Kind on the P11D.

basic rate tax payer @ 20%) higher rate tax payer 40%)
Certificate Value £1000 £1000
Cost to employee £50
(25% of value x 20%)
(25% of value x 40%)