TR0028
Written evidence submitted by the Cycle to Work Alliance
Introduction
- The Cycle to Work Scheme is one of the UK’s most popular tax relief schemes. It is a proven and effective tool for increasing rates of cycling activity among employees by making bike ownership more affordable.
- The Cycle to Work Alliance is a policy coalition of five of the leading providers of the Cycle to Work Scheme. Our members are Cyclescheme, Cycle Solutions, Evans Cycles, Halfords, and Vivup, collectively representing around 80% of the scheme’s market.
Does the current suite of tax reliefs represent good value for money?
The Cycle to Work scheme is a hugely popular and highly effective initiative that has already benefitted around 2 million people, setting it apart as one of the most effective tax reliefs that employees can access.
The economic benefits associated with the Cycle to Work scheme are:
More than ever, commuters need access to affordable modes of transport to help them tackle the cost of living. As the cost of other travel alternatives rise, cycling is the clearest way of employees reducing their commuting costs in the long run.- The table above lays out the clear savings scheme users achieve in comparison to other options for purchasing a bike. Basic tax rate payers can save up to 42% of the total cost of a new bike, cutting hundreds of pounds off their annual cost of commuting, whilst benefiting from increased affordability by paying the cost off over a longer period of time.
- 43% of scheme users state that the main reason why they were encouraged to join was because it spread the cost of a bike and cycling equipment over several months. This benefit has become even more important given the current cost of living crisis.
- Not only does the Cycle to Work scheme save consumers money and allow them to spread payments out, it also does not come with the same risks as credit cards or buy now pay later schemes. As a salary sacrifice, consumers are not at the same risk of late payment fees, high interest rates or bad credit scores. So long as an employer offers the scheme and certain conditions are met, employees can obtain access to a bike and start their cycle commuting.
The role of the scheme in promoting behaviour change:
- The Cycle to Work scheme is a proven tool for getting people to take up a more active, low carbon, and low cost way to commute.
- In a Cycle to Work Alliance survey last year, we found that people are twice as likely to report cycling regularly after accessing the scheme than they were before — 40% of current scheme users said they were regular cyclists before using the scheme, and 80% said they were regular cyclists after using the scheme.
Supporting the UK workforce: The scheme supports increased rates of cycling activity among employees, helping to reduce the number of journeys taken by car and reducing carbon emissions. Evidence published by TfL shows that cycling also contributes £5.4bn to the UK economy through increased retail spending, reduced road maintenance, reduced healthcare costs and a range of other factors.
Supporting employers: Cycle to Work Alliance data shows that almost 90% of employers believe the Cycle to Work scheme helps improve employee wellbeing. Meanwhile, almost half of employers said the scheme is an integral benefit in their workplace.
- Data from a recent Cycle to Work Alliance survey on the general public’s perceived benefits of cycling shows that the most important benefits are improved physical and mental health, reduced environmental impact, and reduced cost of commuting.
Do cliff edges in the structure of tax reliefs lead to problems for taxpayers, businesses or for the wider economy?
- There is clear support for the scheme, as demonstrated in a recent Onward report, labelling it as a “standout” example of how collective incentives can drive forward behaviour change, and urging government to extend the exemption to other technologies. Our priority is to make the scheme as successful as possible.
- Whilst the benefits of the Cycle to Work scheme are evident, at present a proportion of the workforce is unable to join the scheme.
- Alliance data shows that, as of 2021, around a quarter of scheme users earn £27,000 or less. Whilst we’re proud to be able to support many workers on lower and medium salaries through the scheme, the proportion of users accessing the scheme who are paid £17,000 or less is far lower (3%). At present, those on or around National Minimum Wage are disproportionately underrepresented. This is a consequence of the scheme’s rules.
- The Cycle to Work scheme guidance states that all employees must be paid the National Minimum or National Living Wage in order to be eligible for the scheme. This cliff edge means that employers are restricted in sacrificing their employee’s salary to a level below this minimum, meaning that these employees are unable to achieve significant financial savings at an affordable rate.
- A survey undertaken by the Cycle to Work Alliance in 2021 found that a third of employees who had not previously participated in the scheme said this was because their income was too low, which prevented them from participating, indicating clear demand for the scheme.
- The overall savings participants can make through the scheme mean that the benefits of bringing one’s wage below National Minimum Wage far outweigh the risks involved.
- In addition to the National Minimum Wage cliff edge, the Alliance has also identified administrative barriers to access the scheme for the self-employed. As present, only PAYE employees are able to access the Cycle to Work scheme, meaning that the current scheme guidance explicitly prohibits self-employed workers from accessing the scheme.
Please outline potential reforms to the system of tax reliefs
- The rising cost of living is increasingly putting a strain on society. In particular, our communities are feeling the effects of soaring inflation to a greater extent than those on higher wages, with the rising cost of commuting only adding to their concern.
- They often have no option to do their job from home and are forced to commute to a place of work. The Cycle to Work scheme has the potential to open up equitable access to cycling and provide a cost-effective solution for many workers within this group. The scheme is a proven mechanism at getting more people cycling, and we believe those on the lowest incomes and the self-employed should benefit too.
Low Earners
- The Cycle to Work Alliance strongly believes that the Cycle to Work scheme should be opened up to workers earning at or near the National Minimum Wage (NMW).
- The Low Pay Commission estimates that there were around 2 million workers paid at or below the NMW in April 2020, around 7% of all UK workers. At the end of 2019, there were more than 5 million self-employed workers in the UK, according to the ONS.
- How this would work:
Government should introduce a specific exemption for the Cycle to Work scheme, allowing employers to enter staff into a salary sacrifice arrangement for the specific purpose of obtaining a bike and safety accessories through the scheme, even if it brings their take-home pay below National Minimum Wage.
The Cycle to Work Alliance has developed a comprehensive set of safeguards to protect scheme users earning at or near the NMW, including integration of cost-calculators as part of the process for joining the scheme to help lower earners understand the required payments, as well as a mechanism that can identify whether an employee’s income is likely to be taken below NMW.
Where an employee’s wage would be taken below NMW, we have also proposed integrating a warning system to clearly indicate that this would be the case, and a verification process that would require the employee to confirm they understand the risk that salary sacrifice payments could bring them below the NMW threshold. This will likely be in the form of a checkbox and we will link to our FAQ page to clarify any further queries.
Self-employed
- As it stands, only PAYE employees are able to benefit from tax reliefs such as the Cycle to Work scheme. The current scheme guidance explicitly prohibits self-employed workers from accessing the scheme. This is despite the fact that self-employed and gig workers, who also pay taxes on their income, make up a significant – and growing – proportion (c. 13%) of the country’s workforce.
- Self-employed workers face many of the same challenges that PAYE employees do. The benefits of the Cycle to Work scheme that encourage economically and environmentally responsible behaviour aren’t so readily available to the self-employed, despite the providers who form the Cycle to Work Alliance receiving thousands of enquiries every year from self-employed workers who want to access the scheme.
- As the number of self-employed workers is expected to grow, the need for the Government to open up access to the scheme for these workers becomes more important.
- How this would work:
HMRC currently publish a list of allowable expenses for self-employed workers. These include office, travel, and uniform costs, for example.
To enable self-employed sole traders to benefit from the scheme, this guidance should be updated to include the Cycle to Work scheme as a permissible expense under travel costs.
The Department for Transport should also remove the current statement which explicitly states that self-employed people cannot participate.
Self-employed workers would then include the purchase of a bike under their allowable expenses, just as train tickets and fuel are currently.
Scheme providers could work with the self-employed to process the administration behind the salary sacrifice benefit, and as with all employers, get to work in engaging and activating cycling to work in their mindset.
October 2022