Cycle to Work schemes and their benefits

Sickness and absence costs UK industry £12bn each year, according to the Health and Safety Executive. But what if there was a way to improve your employees’ health and wellbeing while upping their productivity?

Cycle to Work schemes do just that, as well as adding to an organisation’s green credentials. The legislation that covers Cycle to Work schemes was launched as part of the government’s Green Travel Plan in the Finance Act 1999, and the scheme was rebranded Cycle to Work in 2005.

“The incentive for employers is the tax break associated with the scheme, but it’s a win-win because there are tax breaks for the employee too,” explains a spokesperson for the Department for Transport.

In January Ruth Kelly, secretary of state for transport, announced a £140m investment in cycling, including grants for local authorities to improve cycle networks. “The government wants to encourage people to cycle as often as possible,” adds the spokesperson. “About a quarter of car trips are less than three miles – a distance that can be cycled in 15 minutes. If these trips were done by bike, it could have a considerable impact on local congestion and pollution, as well as giving people more exercise.”

Two wheels good

To cut down on paperwork, most employers use a third-party provider such as Halfords, which was the first bike retailer to offer a service – called Cycle2Work – to facilitate the scheme.

The employer does not incur any cost with a Cycle to Work scheme. Once registered with your chosen provider, the employee can select a bike which you purchase outright. You then receive payment from your employee via the salary ‘sacrifice’ over a period of time. VAT-registered employers can reclaim the VAT on the bike, and no national insurance contribution is collected for the portion of salary sacrificed.

Since 2002, Halfords has worked with about 3,000 employers getting 80,000 bikes on the road. “Employers are increasingly tasked with reducing car usage and encouraging greener modes of transport. A Cycle to Work scheme can help achieve this,” says Paul Bullett, business to business development manager at Halfords. “It also frees up car parking space, which is often at a premium.”

Wheels of fortune

One employer already feeling the benefit of a Cycle to Work scheme is Notting Hill Housing, an organisation providing homes and services to groups from the homeless to first-time buyers.

To set up a scheme, Notting Hill Housing approached the London Cycling Campaign (LCC), a charity promoting cycling in London. “The LCC gave us lots of useful advice on setting up a scheme and put us in touch with Halfords, so it was all really easy for us,” says Rachel Bhageerutty, communications manager at Notting Hill Housing.

Based in West London, the company wanted to offer bikes to its 600 staff as part of its ‘Love Where You Work’ campaign to promote healthy living and encourage them to focus on their work-life balance. Today, it has 75 staff who have used the scheme to purchase bikes.

“Our staff live anything up to 15 miles away and have taken advantage of the scheme to buy the bikes of their dreams,” says Bhageerutty. “We also offer a large storage area for locking up bikes and showers and drying cupboards for staff who cycle in.”

Bicycle benefits

There are several perks to the scheme, including improving how staff feel about where they work. It is also playing a part in staff recruitment and retention, says Bhagee­rutty. “The staff are real advocates of the scheme because it’s such a good deal. They can save up to 50% on the cost of a bike.”

Indeed, as well as helping staff exercise, Cycle to Work schemes have been linked with increased productivity and reduced stress in the workplace.

It also means staff can buy a brand new bike and safety accessories for far less than if they had bought it themselves.

One of the drawbacks of any subsidised employer scheme, however, is overcoming workers’ unwillingness to fill in forms or complete long-winded request documents.

But Andrew Muir, head of policy and continuous improvement at Notting Hill Housing, found this side of the process easy. “I claimed my voucher easily to get the bike, and with the cost spread over 12 months it was far easier to budget for,” he says.

Legally, Cycle to Work schemes are included in employers’ liability insurance cover. When running a scheme, it is recommended that employees sign an agreement to ensure they will maintain the bike in a safe and roadworthy condition and insure the bike themselves.

It is also worth considering secure cycle parking, providing showers and inviting a cycle training provider to run an instruction course on safe cycling. The Cyclists’ Touring Club can put you in touch with a trainer in your area.

Ultimately, the benefits outweigh any effort in setting up the scheme and ensuring staff are legally covered and insured. As Jayne Hilditch, group director of corporate services at Notting Hill Housing, concludes: “At least our cycling staff can always be relied on to get here, which was invaluable during the last tube strike.”

How do Cycle to Work schemes operate?

Cycle to Work schemes are tax incentives that allow employees to contribute to the cost of a bike through a monthly salary sacrifice. At the end of the loan period, which is usually 12 months, the employee can buy the bike for a nominal fee of about 5% of its purchase price. Safety-related equipment such as lights, locks and waterproof clothing can also be included and qualify for the tax savings.

Running a Cycle to Work scheme can be cost-neutral. The value added tax (VAT) that would otherwise apply to bicycles and cyclists’ safety equipment can be reclaimed as long as the employee is using the bike as their main form of transport to work. Employers will also avoid the national insurance contribution of up to 12.8% on the value of the salary sacrificed.

The savings on the cost of a bike can be substantial. The discount available to an employee depends on their personal circumstances, with those in higher tax brackets benefiting from bigger discounts. Employees are taxed less too, with tax being applicable to the salary only after the salary sacrifice has been paid.

How it works

  • On a salary of £48,000 a year, your monthly gross pay is £4,000.
  • Purchasing a bike worth £1,200 over the 12-month payback period would reduce the salary by £100 each month, leaving £3,900 a month, or £46,800 a year.
  • You are taxed after the £100 a month for the bike has been paid, removing £418.75 of tax and national insurance from the equation.
  • VAT-registered firms can reclaim the tax – in this case, a further £178.73.
  • Total saving: £597.48, or 49% of the purchase price.

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