Workplace Benefits Explained: Cycle to Work, Electric Cars, and Childcare Vouchers

Most people know salary sacrifice can boost their pension. Fewer realise it can also fund a new bike, an electric car, or childcare — all with significant tax savings.

Here's how the main workplace benefit schemes work in 2024/25.

How workplace salary sacrifice works

All these schemes follow the same principle as pension salary sacrifice: you agree to a lower gross salary in exchange for a benefit. You pay tax and NI on the reduced salary, so the benefit costs you less than buying it outright.

The saving depends on your tax rate:

Cycle to Work

The Cycle to Work scheme lets you get a bike and safety equipment through your employer, paid for via salary sacrifice over 12 months.

Key facts:

• No upper limit on bike value (most employers set their own cap, often £1,000–£5,000)
• Covers e-bikes and standard bikes
• Equipment (helmet, lights, lock) included
• At the end of the hire period, you can purchase the bike at a small fair market value

Electric Vehicle (EV) salary sacrifice

Electric car salary sacrifice has grown rapidly since the government set the Benefit in Kind (BiK) rate for fully electric cars at just 2% (2024/25 to 2025/26).

You sacrifice salary to cover the lease cost of an electric car. The BiK tax you pay on the car is minimal compared to the tax and NI you save on the sacrifice.

Things to check:

• Your employer must offer an EV scheme (many large employers do; smaller ones may not)
• The car must be fully electric — hybrids have higher BiK rates
• Salary sacrifice reduces your gross pay, which can affect mortgage affordability

Childcare — Tax-Free Childcare vs salary sacrifice vouchers

Childcare Vouchers (the old salary sacrifice scheme) closed to new entrants in October 2018. If you joined before then, you may still be using them.

Tax-Free Childcare replaced it. This is not salary sacrifice — it's a government top-up scheme:

• For every £8 you pay in, the government adds £2
• Maximum government top-up: £2,000/year per child (£4,000 for disabled children)
• Available for children under 12
• Apply at childcarechoices.gov.uk

Other common workplace benefits via salary sacrifice

What to watch out for

• Minimum wage floor — your salary after sacrifice cannot fall below the National Minimum Wage
• Mortgage applications — lenders use gross salary; large sacrifices reduce what you can borrow
• State benefits — some benefits (e.g. Statutory Maternity Pay) are calculated on reduced salary
• Annual Allowance — pension sacrifice counts toward the £60,000 annual limit

Summary

• Cycle to Work saves 28–42% on a bike depending on your tax rate
• Electric car salary sacrifice is exceptionally tax-efficient at the current 2% BiK rate
• Tax-Free Childcare gives a 25% government top-up (up to £2,000/year per child)
• All salary sacrifice schemes reduce gross pay — check the impact on mortgages and state benefits
• Stack multiple schemes where possible for maximum savings