Thursday, July 17, 2008

Bike to Work Scheme

“Cycle to Work” is a UK government tax incentive encouraging employees to bike to work, reduce their engine pollution and dramatically improve their health and wellbeing.

Britain loses about £12 billion due to sickness and absenteeism at work as recorded by the Health and Safety Executive.

Driving in London is an absolute joke. By the time we’ve paid for the congestion charge, the exorbitant parking (fees and fines), then paid our ransom to the mighty OPEC on the forecourt, we are left stuck in traffic jams, frustrated, often late and always heavily out of pocket. 40% of all car journeys (nationwide) are less than five miles.

The above facts are why so many people are starting to ride bikes to work.

Bike to work - Benefits

Employees who engage in the bike to work scheme, not only save money and get a brand new bike, but also gain advantages in the workplace, which are of interest to the employers.

Cycling to work has proven that employees who bike to work:

  • Work effectively for long periods. The frequency of cycling even short trips, builds stamina that can be useful in the working day.
  • Adopt a more positive attitude to their work. The energy used in cycling to work raises mood levels during the day.
  • Take sick days half as often as employees who don’t bike to work. Because the regular cycling maintains the body’s immune system, healthily.
  • Are less stressed compared to their colleagues who do not bike to work. The physical effort can be as big or small as you want, but the act of cycling during the week, releases stress. It is a very harmonious sensation to travel under one’s own power.
  • Are more productive. If employees are feeling more energised, less stressed, and healthier; it’s most likely they’re going to have a good day.

Lilleshall Sports Injury and Human Performance Centre Report.

Everyone is eligible “on the condition that bikes are used primarily for commuting or work related travel.”

In reality, you could buy a mountain bike, occasionally ride your bike to work and also use it for a nice off-road bike ride if you want. Or perhaps buy a half-price sleek, light, racing bicycle via the bike to work scheme, use it sometimes to ride your bike to work and at weekends enter road races, or cycle long scenic touring bike rides. The point is, you don’t HAVE to bike to work everyday, as long as you do sometimes, you can also use the bike for whatever you want in your free time.

The bike to work scheme can double your budget. So when glancing over the high-tech, super light, bicycles which are “out of your price range”, suddenly, by buying it through the bike to work scheme, such bikes now become a realistic possibility, within your new price range.

Bike to work scheme finances

How it all works:

1) The employee checks that their VAT registered employer runs a bike to work scheme. (If the employer does not; the employee makes considerable noise, directed at HR using the phrases “carbon footprint”, “global warming”, “reduced absenteeism” and “corporate responsibility”).

2) The employee then chooses personally whichever bike they want, plus accessories (lights, shorts, hi-vi, etc), from an approved supplier (typically large stores with lots of choice, like Evans Cycles, Halfords BikeHut, etc).

3) The total cost of bikes and bits will not exceed £1,000 inc. VAT. (Above £1,000, the employer would need to hold a consumer credit licence).

4) The VAT registered employer claims back all VAT on the bike and bits.

5) It is possible that the employer provides the employee’s bike for free.
However, after buying the bike & bits for the employee, the bespectacled bean-counters in the accounts department will most likely recover some of the value from the employee’s monthly pay slip.

6) You approve a regular sum to be taken out of your salary each month. This will be small since it is spread over time. E.g. For a £450 bike, it ends up that you only pay £21.28 per month, which is no dent in anybody’s pay packet. This is the employee leasing (or paying back the loan) from the employer.

There is no interest rate, it is not expensive, the employee simply pays off the VAT-free sum.

Salary sacrifice is available to everyone, but is not allowed if it takes the employee’s gross pay below the legal minimum wage.

Because the value of the employee’s monthly salary sacrifice is not subject to income tax or national insurance, the employee is on a winner here. For example, the combined retail value of a great bike with accessories in the shop sells for £999. The employer makes it VAT-free, (about £825) so this sum does not get taxed in the employee’s pay slip. If that employee is a 40% taxpayer, they’ve saved a further £330! Brilliant! It makes the actual cost of the bike and bits only £496.

7) At the end: To avoid the tangle of being classed as Hire Purchase, the official line is that the employer “leases” the bike to the employee for a set period (e.g. 12 months, 18 months). At the end of that period, the employer may (but is not committed to) offer the employee to buy a used bike from the bike to work scheme.

In reality, of course the employer is going to sell the bike to you, and this will be for a nominal price such as £10 / £20 (since you have already paid off the VAT-free loan), because they don’t want a garage full of ex-lease, bike-to-work bicycles laying around in a warehouse somewhere! In addition, the bike and cycling equipment is very personal; because you chose it, it was bought to suit your tastes (design, bike colour), usage (on / off road), and height (frame size). It makes a lot of sense that you keep the bike.

For information on companies who operate bike to work schemes, visit the bike to work companies page.

Other bike to work resources:

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