Let’s start with some numbers. Impressive numbers. In the first year of trading, turnover at a three-man Cyclescheme was £253,000. Now with 27 staff, turnover is £22.7 million a year. The business grew 1,400 per cent in the first 18 months; it’s now settled down to 350 per cent annual growth.
Twenty five per cent of Cyclescheme’s 100,000 sold vouchers to date have gone to women. According to surveys run by Devon and Highland councils, up to 60 per cent of voucher recipients are new to cycle commuting, and most of them are new to cycling.
The Government’s Cycle to Work salary sacrifice scheme has enabled the rapid growth of the the first company from the bike trade to get into the Fast Track 100 list of one hundred fastest growing UK companies.
Cyclescheme has built its business via partnerships with IBDs. Pretty much every independent in the UK, 1,450 to be exact, is on its books.
“We can cover the whole country,” says company co-director Gary Cooper. “We can sort out an employee with a bike shop within five miles of their postcode. The other schemes can’t do that.”
Cyclescheme was incorporated on Valentine’s Day 2005, founded by Cooper and Richard Grigsby. They’ve never brought in cash from outside investors. Everything has been self-funded, with houses put on the line in the early days in order to underwrite large contracts. Typically, Cyclescheme pays bike shops within two to three days of receiving a voucher, but may not see cash from large contracts until 60 days later.
The business was founded on the back of the lacklustre performance of the first Cycle to Work scheme third-party facilitator: Booost. At the time, Cooper and Grigsby, engineers by training, were running Avon Valley Cyclery of Bath, a business they later relinquished.
“We wanted to set up a scheme with the University of Bath, but Booost wasn’t very helpful,” says Cooper.
“We thought we could do the scheme through the shop, without Booost, but the University wanted other shops involved too. We approached ten other shops, got an agreement and realised this could be done for other employers and elsewhere in the country.”
In its first year of trading, Cyclescheme sent out 800 vouchers to bike shops. The same number of vouchers was sent out in just one day in June 2009, a measure of how far and fast the company has grown. Cyclescheme has sent customers to bike shops from the likes of Coca-Cola and more than a third of Britain’s police forces and councils, and half of the fire and rescue services.
When Cycle to Work contracts were up with other suppliers (three-year deals are the norm), BBC and Microsoft shifted to Cyclescheme. Earlier this year, Rolls-Royce bought £1.2 million worth of bikes for employees in a month. And Cyclescheme recently won an open Government tender with the Department for Communities and Local Government, making its scheme accessible to more than 3.5 million Government employees. The Government’s cycle salary sacrifice scheme was born in 1999, a Green Transport initiative that was all but unknown until repackaged in 2005 as Cycle to Work.
Cyclescheme takes a ten per cent cut from bike shops, and provides administration for employers – it has 8,500 on its database.The employers become the owners of the bikes, and then hire them to employees.
The average voucher value is £600, with £400 for the bike and up to £200 for accessories such as lock, helmet and lights. Cyclescheme has invested heavily in an extranet that generates invoices, contracts and hire agreements online, making it simple to administer the scheme, and hassle-free for employers, none of which pay for the service.
“Bike shops can do the Cycle to Work scheme paperwork themselves for local employers,” says Grigsby, “but employers, especially the larger ones, want a selection of choice, want a mix of independents.”
The salary sacrifice sector is a large one: from childcare vouchers to dental care, and from bus passes to gym memberships. But not computers. Not any more. The Home Computers Initiative was a tax break scheme to get computers into households. One hundred firms relied on the sector, however in 2006, out of the blue, Gordon Brown – then chancellor – scrapped the scheme, killing the sector overnight, instantly.
With the scrapping of the HCI scheme, some third-party facilitator companies, set up specifically to market the tax-efficient, but bureaucratically burdensome PC employee benefit scheme, reconfigured their businesses to offer Cycle to Work, but by then Cyclescheme already had a robust business model and, critically, knew the foibles and strengths of the bike trade.
One of the reasons HCI was scrapped is believed to have been abuse of the system: customers and companies were colluding to get iPods and other hardware as well as PCs. HM Customs and Revenue takes a dim view of such abuse. Some bike shops and Cycle to Work facilitators have been known to play fast and loose with the bike rules.
Too many tales of systemic abuse (such as ‘topping up’ – customers adding their own cash to the bike package even though the bike belongs to their employer; and not playing ball with FMV, fair market value, the cost of the bike to the employee at the end of the payment period) and HMRC may take a long, hard look at the Cycle to Work scheme. And given the recession, anything that can claw back cash for the Government is on the political agenda. HMRC is believed to be agnostic on the green benefits of Cycle to Work; it looks at the scheme from a tax point of view only.
Do the Cyclescheme directors wake up in a cold sweat at night, worrying the bike trade could suffer a similar fate to the HCI industry? “Yes. The threat is omnipresent,” admits Grigsby in an all-eggs-in-one-basket sort of way. “This is all we’ve got; we no longer have any other business.” But he sees no sign of an about face by the Treasury.
“Recent announcements like the Cycle to Work Guarantee and the re-drafting of the Department for Transport’s Cycle to Work guidelines in September mean there’s a lot of mature thought going into the Cycle to Work concept.
“Lord Adonis [Transport Secretary] is in favour of it. David Cameron is a cyclist, so even if there’s a regime change at the next election I think the powers that be will keep the Cycle to Work concept going.
“Our statistics show us that we’re getting a lot of people out of cars and on to bikes, many for the first time. We’re helping with modal shift, a key objective. Cycling to work presses all the right buttons – health, prevents congestion, pumps out less carbon dioxide.”
HMRC doesn’t allow its own staff to use tax breaks to buy bikes (or any of the salary sacrifice products, for that matter) but, looking on the bright side, Cyclescheme runs the Cycle to Work schemes for the Office of Fair Trading and the Department for Transport. It has also run the Cycle to Work scheme for the Conservative party for four years (no, David Cameron didn’t buy his bike on a tax break).
To those bike shops that have done well so far out of the Cycle to Work scheme, Gary Cooper assures BikeBiz that there will be more of the same on the way. “The sector is going to keep getting bigger and bigger,” he says. “We have only scratched the surface so far. The potential for our Cycle to Work scheme is immense.”