What is K Code (Tax Code)?

Full Definition

A K code is issued by HMRC when the total value of your deductions (benefits in kind, unpaid tax from a previous year, state pension exceeding your personal allowance, or other adjustments) is greater than your Personal Allowance. Because there is no allowance left to offset these deductions, HMRC adds the K figure multiplied by 10 to your gross earnings for tax purposes, effectively creating a negative allowance. For example, a tax code of K497 means an additional GBP 4,970 is added to your taxable income each year. Employers apply this through PAYE by treating the K adjustment as extra taxable pay. However, there is a regulatory cap: HMRC rules prevent employers from deducting more than 50% of an employee's gross pay in any pay period to cover the K code tax, protecting employees from taking home nothing. K codes most commonly arise from: company car or van benefits in kind that exceed the personal allowance; underpaid tax from a prior year collected via code; state pension income that already uses up the full personal allowance; or other taxable income streams that HMRC wants to collect through PAYE. If you believe your K code is incorrect, you can query it via your Personal Tax Account or by contacting HMRC directly. Correcting a K code mid-year triggers a tax recalculation across all remaining pay periods.

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