The 1999 Finance Act contained clauses that allowed employers nationwide to loan cycles to employees as a tax-free benefit. Ten years on, several companies are offering cheaper cycling to the masses. Mark Sutton gathers various perspectives on the schemes...

Ten years of Cycle2Work

As part of the Government’s initiatives to promote healthier living and reduce pollution, the 1999 Finance Act introduced tax exemption to those buying bicycles for the purpose of cycling to and from work. The scheme works by encouraging employers to get their workforce cycling, offering tax-free bicycle purchases to employees interested in a healthier means of travelling to work.

Salary sacrifice arrangements are commonly used, where the employee repays the employer over time. Employers of all sizes and sectors can use the scheme.
Debates have raged about whether or not the scheme benefits smaller retailers, with the main pro point being increased sales volume driven by third party brands. But many others suggest that the commission taken by third party facilitators slashes margins.

Although not common knowledge, e-bicycles and tricycles can also be obtained tax-free, as can safety and security product, including lights, bells, helmets, mirrors, reflective clothing, locks and mudguards.

The only major limitations to the scheme have been put in place by the Office of Fair Trading, advising: “The group consumer credit licence will cover schemes up to £1,000.”

Perhaps the biggest player in the market, Cyclescheme reaches 8,500 employers and 1,338 retailers in the UK, on average gaining new clients at the rate of around 50 per day. It is projected that over 1,500 IBDs will work with Cyclescheme by year end.

Working with organisations like the Greater Manchester Police, Sellafield and Asda, the business is going from strength-to-strength recording ten-fold growth in the firm’s second year over the first, slowing to a four-fold growth in year three. This year, MD Richard Grigsby expects to have doubled last year’s turnover, having achieved it month-on-month to date.

“There seems no reason to expect a slow-down as most schemes are repeating and we are seeing many new clients join us daily,” says Grigsby.

“After moving into a three floor Georgian building when we had just seven staff, we’re now looking for larger premises for 23 staff.”

The firm has also made solid investment in extranet software allowing the company to grow organically. Approving and payment for vouchers is now largely automated and the system also allows instant viewing of live applications 24/7.

Grigsby says of the future of Cyclescheme: “None of us would be so churlish as to assume that C2W will continue because ‘it’s such a great scheme’. The risk of having to wind up our business at the whim of a Government decision is omnipresent and a constant reminder of the frailties of our business. To put this into perspective I have met the man who axed the Home Computer Initiative so I am under no illusions over the potential risks of persistent scheme abuse.”

Grigsby shared some interesting statistics with BikeBiz, revealing that an average voucher is worth £600, with 15 per cent of that going toward safety equipment. So most purchases are going on reasonably specced bikes, but not ‘dream racers’, suggesting that Cyclescheme is genuinely drawing new faces to cycling. In fact, survey responses show that 50 per cent of customers are entirely new to cycle commuting and Cyclescheme doesn’t shift small numbers…
Cyclescheme: 01225 448933

As a company largely based in London, CycleSurgery has long been a bike and servicing destination for cycle commuters. With a demographic largely made up of London’s cyclists, the multiple would be mad not to offer a C2W solution.

According to Cycle Surgery’s Tax Free Cycle Representative James Robertson: “This has always been reflected in our bike sales where a large portion of sales are suited to commuting. What the Tax Free initiative has done for us is to allow existing customers to upgrade their bikes, making commuting faster, more comfortable and safer, while introducing new customers who wouldn’t necessarily have considered biking to work.”

The higher-value purchases gained have bolstered the retailer’s Cyclescheme-run programme too, giving staff the confidence to offer customers bikes that are far-higher specced than they could have hoped for.

“The introduction of the scheme has brought cycling to a whole new demographic who aren’t ‘cyclists’ but are looking to the bike as a commodity, in the same way as they view a bus or a car. It’s just the quickest and cheapest way to get from A to B,” continues Robertson.

“Vouchers redeemed in our stores on tax-free schemes have nearly doubled in the past year. The scheme has been around for ten years, but has really only become widely recognised in the past two or three years.”

The store also runs its own scheme, dubbed Tax Free Cycle, operated alongside Cyclescheme and launched at the end of 2008.

Robertson says of this: “The benefits to us are not so much commission-based –it’s not cheap running your own scheme – but more that we can be guaranteed that if we spend time and resource on winning a firm’s business, all employees buying bikes on the scheme will come to our stores – increasing our return on investment.”

So for this multiple at least, the scheme is proving a shot in the arm. Existing cyclists are buying new bikes when they previously would have made do with their current ride. People are riding who previously wouldn’t, a percentage of which are bound to become regular cyclists.

The Government’s green transport plan has undoubtedly brought new awareness and an enthusiasm for cycling to a growing group of entry to mid-level cyclists.

For Edinburgh Bicycle, which operates its own in-house programme, the legislation has meant extra footfall and sales.

MD Jeremy Miles tells BikeBiz: “The early years of the plan brought additional business as the early adopters were keen to get involved and to work hard to promote their scheme to employees. However, as scheme awareness increases it’s clear a large number of existing customers are holding off on purchases to benefit from the savings. This doesn’t cause us any particular problems other than the minimal admin cost of the scheme and the extension of credit terms to some of the companies we work with. That said, if we had to hand a significant slice of the sale over to a third party provider then it would certainly bite into an already moderate margin.”

Miles believes anyone operating a similar scheme needs to be flexible and deliver a speedy and efficient service. “If a customer has to wait more than a week to enjoy the bicycle then we feel they have been let down by the administrative process. We find that increasingly employers are interested in how long the transaction takes and are keen to work with providers who can shorten this down. Our ability to operate a flexible scheme gives us an advantage over our competitors. We also find that willingness to provide promotional support to employers generates more conversions and puts more ‘bums on saddles’ in the long run.”

Edinburgh Bicycle also works alongside employers to run C2W roadshows. Printed material is circulated, providing reference for potential customers.
“Overall, running the programme is beneficial for both as it delivers a staff benefit for the employer and increased footfall and sales for us.”

Having designed and built Halfords’ C2W platform, Cycle To Work Now then set out on its own venture targeted at small to medium sized retailers – the majority of UK businesses. The company has no minimum orders, meaning supplying single bikes is not a problem.

At present the firm has one supplier, but more are due to come on board as the company expands. Perhaps one of the firm’s strongest assets, and one that appeals to IBDs, is that it offers immediate payment.

C2WN owner Rob Howes says: “We think local bike shops have a huge part to play in the future of green transport, but they need to modify their game. The hardcore cycling enthusiast can be quite intimidating to a new cyclist and they have often forgotten what it’s like when you first get on or return to a bike. That’s the reason for our C2WN blog, to share the experience and provide encouragement.”

With aspirations to become a leading player in the market, Howes adds: “We think there is a green revolution coming and bikes have a major part to play.”

As with other businesses in the sector, Howes kept a close eye on this year’s budget for fear of legislation change. “Unlike previous schemes run along these lines such as the Home Computer Initiative, cycling has such health and environmental benefits it’s hard to see why any Government would want to drop it. The costs are tiny and the saving to the NHS are huge.”
Phone: 0207 183 1316

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