Company car tax explained - Cash or car?

With taxes always going up, more company car drivers are questioning the value of their so-called employment perk - especially as most employers will readily replace a company car with a salary increase.

Before you take the cash and head off to buy your own car, though, it's worth remembering that any salary increase will still be taxed and that you will have to pay for the servicing, insurance and depreciation involved in owning and running your own car.

There is an alternative to replacing a company car with your own: get a car on a personal contract purchase (PCP) with a maintenance contract.

These are available from car companies and finance providers, and although they often work out more expensive than owning and running your own car, all your servicing and maintenance are included in your monthly payments.

By deferring a portion of the loan until the end of the term, a PCP keeps monthly payments down and allows you to either hand the car back or pay the deferred amount off at the end of the term.

To help you work out if you are better off taking the cash or company car, try using an online calculator such as www.lvl.co.uk.