CYCLING in the UK is at an all-time high – buoyed by the first British winner of the Tour de France and with expectations for continued Olympic cycle success running high.

Tax incentives also exist to promote cycling via the Cycle to Work scheme.

Under the scheme, an employer can buy or hire bikes and lend them to their employees on a tax-free basis as long as the offer of a bike is open to all employees who use the bike mainly for qualifying journeys, generally taken as travel between the employee’s home and work place or for work related travel.

“Mainly” means 50% of the time the bike is used. Private use of the bike by the employee or members of their family will not disqualify the exemption provided that the other use is not the main use of the bicycle.

Businesses buying bikes and safety equipment such as lights and reflective clothing to loan to their employees can reclaim the VAT incurred (if registered).

Also, they can claim an immediate write-off against profits of the cost of the equipment as long as the total amount of all qualifying expenditure does not exceed £25,000 per year.

Often, an employer can choose to recover the cost of providing the bike directly from employee via a salary sacrifice arrangement.

A salary sacrifice happens when an employee gives up the right to receive part of their cash pay due under their contract of employment in return for a non cash benefit.

In doing so, an employee saves tax and NIC on that part of the salary forgone and the employer also saves its NIC. A salary sacrifice cannot be used if in doing so the employee's gross pay drops below the National Minimum Wage.

If ownership of a cycle is transferred to an employee after a period of use during which the above exemption applied, to avoid a tax charge on the bike’s transfer they would have to pay the employer the market value of the bike at the date of transfer.

Difficulties can arise in establishing the second hand value of bikes and in order to ease the administration of valuing cycles sold to employees both parties may choose to use HM Revenue & Customs’ simplified approach to valuing the bike which is found by multiplying a fixed percentage rate against the original price of the bike.

Under the simplified approach a bike, for instance, with an original price of £450 transferred to an employee after two years would have a market of £58 (13% of its original price) and after four years its value would be £36 (3% of its original price).

The employee would have to pay these amounts to avoid a tax charge on the transfer of the bike.

Even if cycling to work does not breed a future Olympic champion, it may still improve the financial and physical well-being of both employers and their staff.