Biking brings its benefits

The Dutch have long been known as keen cyclists and their transport infrastructure reflects this – you only have to visit one of the country’s major cities to see how people are encouraged to get around on two wheels.

By comparison, it has taken us Brits a while to see bikes as a feasible alternative to cars or public transport, particularly when commuting. Cycling to work has, however, become increasingly popular since the introduction of the Cycle-to-Work (C2W) tax relief scheme, part of the 1999 Finance Act.

At first it was mainly councils encouraging local staff to bike to work, but many large corporations, including broadcaster BSkyB, energy firm EON and pharmaceutical giant GlaxoSmithKline (GSK), have since got on board. More than 400,000 employees across 15,000 employers have joined the Cycle-to-Work Alliance since it was established in July 2010.

In basic terms, C2W schemes allow employers to loan cycles and cyclists’ safety equipment to employees as a tax-free benefit under a salary-sacrifice arrangement, usually for a fixed hire period (commonly 12 months). Companies using such a scheme have an obligation to provide secure bike parking and changing facilities for staff. Employers are also permitted to sell employees the bike at the end of the hire period for a discounted rate. This figure was widely taken as 5% of original value but in August last year, the Government decided that was too generous and tightened up its rules. HMRC issued a simplified valuation table to calculate the bike’s market value so that it now roughly equates to 18% of its original value one year on and 13% after two years.

What are the savings for the employee and employer when joining a C2W scheme?

Typical savings for employees are between 42% and 52%, but the actual amount depends on the employee’s personal tax band and the way that the employer runs their scheme. Higher-rate taxpayers will save more; employees whose company cannot reclaim VAT (the NHS, for example) will save less. If the employer uses external finance (ie borrows the money to buy the bikes from an outside agent) then savings will be approximately 5% lower.

Employers can typically save 13.8% of the total value of salary sacrifice, due to reductions in employers’ national insurance contributions due.

Source: Cycle Scheme.

This increased cost, however, has done little to deter employees from choosing two wheels over four. A recent study by Halfords and the Cycle-to-Work Alliance found that 60% of staff bike to work between three and five days per week. Just under one-third of them cycle up to five miles to work, 40% have up to a 10-mile commute, while the remaining 29% cycled up to 20 miles or over. The report surveyed 1,233 employers and 44,599 employees.

Mark Brown, head of Ride2Work at Evans Cycles, says that C2W has become one of the most popular and valued employee benefits in the UK. “We have seen significant interest in the scheme over the past three to four years,” he notes. “It’s a lifestyle benefit, which saves employees money and helps them get fitter and do their bit for the environment. Employees are highly motivated and lobby their employers to ensure this benefit is available to them.”

The recession, increasing awareness of environmental issues and rising fuel prices have all been contributing factors in the growing popularity of C2W. As Richard Davies, head of P&MM employee benefits, points out: “The average family will be £910 worse off this year [according to recent statistics from the Centre for Economic and Business Research] due to rising costs in household bills. So it’s a no-brainer for families to streamline and reduce their outgoings where possible. The costs associated with driving a car mount up quickly, and with the rise in fuel, not to mention rocketing parking prices, travel expenses far exceed the cost of driving 10 years ago.”

The environmental aspect is a plus for both the employer and the employee. The employee can reduce their carbon footprint and the employer can also cut its CO2 omissions, which ties in well with companies’ corporate social responsibility policies. “There are also the wider factors regarding congestion and the cost of private and public transport, together with cycling being increasingly fashionable and accessible, with more cycle lanes being available in many towns and cities,” Brown adds.

At the start of 2011, minister for cycling Norman Baker pledged an unprecedented £560 million to the new “local sustainable transport fund’ after publishing the “Creating growth, cutting carbon: Making sustainable transport happen” White Paper. Then, in February, the Government reaffirmed its commitment to C2W after the Office of Tax Simplification recommended the continuation of C2W tax relief. The office said that it recognised that the legislation played a key role in helping people live healthier lives and creating new cyclists. Keith Scott, head of Halfords Cycle2work, says: “This was a hugely important signal of the importance of the C2W scheme, which is expected to make an ever increasing contribution to future achievement of sustainable transport objectives and the desire by employers to encourage healthier workforces.”

Brown says that increasing numbers of small businesses are now also opting for C2W schemes as they recognise their value as a cost-efficient but highly valued benefit. “I think there is still a lot of growth for the market, especially within the SME sector. We still find that many new companies joining the scheme have never offered it to their staff before which suggests there is strong demand for it,” he says.

So it looks as if more and more people will be ditching their cars and getting on their bikes in the coming years. And the main beneficiary of this will probably be the environment. As Baker points out: “If all the commuters in England with a journey of under five miles went by bike rather than car or bus, they would save a collective 44,000 tonnes of CO2, the equivalent emissions produced by heating nearly 17,000 houses. And that would just be in the first week.”

Interested in embarking on a cycle-to-work scheme for your business? Take a look at our free buyers’ guide on the subject.

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