There will be a contribution deposit payable, equating the to value of a four-year-old bike and the employee would sign an extended use agreement.

This means that for a £500 bike, an employee would be expected to pay £35. “At the end of the extended hire period, the user keeps the bike and we keep their deposit,” said Grigsby.

Around 25,000 firms currently offer the scheme, and cyclists’ organisation CTC said the clarification would sweep away an area of uncertainty that was putting off employers from getting into the scheme in the first place.

In a statement, HMRC said: “The Cycle to Work scheme is a very generous tax break and remains so.

“There has been no change to the rules, if an employer passes a bike to an employee after its use under the Cycle to Work scheme at its full market value there is no tax charge.”