Choccy,
I'm no expert but from the research I've done.

The company pay the £1000 (- vat) and own the bike. The amount you pay to 'rent' it and in the Fair Market Value payment is up to your company. My understanding (and I'm not an accountant) is that as long as your company isn't giving you a bike (benefit in kind) then you're fine.

Your company could decide not to charge you anything while you loan the bike for 12 months. They could then say that the fair market value at the end of the 12 month loan period is £500 and you pay £500 to buy the bike.

Or, more likely, they decide to recover the cost of the bike through a salary sacrifice. They chanrge you £50 a month and after 12 months you'll have paid a fair market value for the bike. I see it as though your employer is 'banking' the money for you until the end of the 12 months. You then buy the bike with this banked money.
Either way, your company isn't out of pocket because you've paid for the bike. You've paid a fair amount for the bike so you're not liable for tax.

There is a company that will administer the scheme for your company(www.cyclescheme.co.uk) using the 'rent' model. They define Fair Market Value as approx 5% of the original price and they have lots of companies using their scheme.

I've also heard of other companies that administer the scheme in the same way. So that's the way I'm going to administer it.

I could be wrong, but I'm pretty confident that it's fair.

P.S. If you have a cycle loaned to you, you can't claim the 20p a mile travel expenses.
P.P.S. Your employer can provide up to 6 free breakfasts a year for people who cycle to work on 'cycle to work' days.