A tax code starting with K on your payslip can look worrying, especially after a job change, a new company benefit or the start of a pension. It does not automatically mean payroll has made a mistake. HM Revenue and Customs (HMRC) uses a K code to collect tax on certain income or benefits that are not taxed at source. The important question is whether the details behind the code still match your circumstances.
What a K tax code means
Most PAYE tax codes reflect income you can receive from a job or pension before tax is deducted through that source. A K code works in the opposite direction: it applies when taxable amounts to be accounted for through the code exceed your tax-free Personal Allowance. Your employer or pension provider then uses the code to collect tax through PAYE.
The letter is not itself a penalty or a bill. It signals an adjustment to the PAYE calculation. TaxPro’s guide to what a K tax code means gives a further explanation, but your HMRC record is the place to check which details have produced your own code. Two people with the same code may have different reasons for receiving it.
Why HMRC may issue a K code
A taxable company benefit, such as a company car, may be included in your tax code. If the benefit changes or ends, the information HMRC uses may need updating. A car remaining on an old record does not establish that you still receive it.
State Pension can also affect a code used for wages or a private pension. State Pension is taxable, but tax is not normally deducted before it is paid, so HMRC may collect tax due on it through another PAYE source. Other taxable state benefits or untaxed income can have a similar effect. Savings interest above your Personal Savings Allowance is another example identified in HMRC’s explanation of K tax codes.
Another reason may be collection of tax owed from an earlier year through wages or a pension. More than one item can contribute, so checking the entries is more useful than guessing the cause from the letter alone.
How to read the number after K
Multiply the number after K by 10 to find the annual adjustment added to taxable income for PAYE purposes. For example, K100 represents a £1,000 annual adjustment in the calculation. It is not the amount of tax you owe, nor income you have received. The tax deducted depends on the pay or pension to which the code applies and the rest of the PAYE calculation.
The number alone does not show which benefit, income source or earlier underpayment is responsible. If HMRC has sent a tax coding notice, often called a P2, check its individual entries. Also note which job or pension uses the code: separate PAYE income sources may have different codes.
The 50% limit – and what it does not mean
Under the K-code rules, an employer or pension provider cannot deduct more than half of the pre-tax wages or pension as tax in a single pay period. This limits the tax taken from that particular payment, even when the code would otherwise produce a larger deduction.
It is not a cap on your tax liability for the whole year. If the limit prevents all the tax due from being collected through PAYE, an underpayment may remain to be dealt with later. Nor does the rule promise that exactly half your gross pay will reach your bank account; other deductions may apply. If the limit is reached repeatedly, check the details behind the code as well as the deduction itself.
How to check whether your K code is right
Start with your latest payslip or pension statement. Note the full code, the employer or provider using it, and the pay period. Then use HMRC’s Check your Income Tax for the current year service through your Personal Tax Account, or review your information in the HMRC app.
Compare the code HMRC holds for that job or pension with the one on your payslip. Then inspect the Personal Allowance and the information used in the calculation: employment and pension details, estimated taxable income and company benefits. A coding notice can help identify the entries that have reduced or outweighed your allowance.
Have current records to hand, such as a payslip, pension details and information about benefits that started, changed or ended. If you receive State Pension, compare HMRC’s figure with your own records. For an earlier underpayment, check the amount HMRC says it is collecting against relevant notices and your records. Matching codes are a useful first check, but the underlying details matter too.
Common reasons a K code may be wrong
A code can be appropriate in principle but based on an out-of-date detail. A company car, for example, might still be included after you returned it. An estimated income figure may no longer reflect what you expect to earn after a change in hours or a move between jobs.
Check whether an old employment or pension is still listed, a new one is missing, or State Pension information matches what you receive. If the code includes an earlier underpayment that your records suggest has been settled, ask HMRC to clarify the entry rather than assuming it will disappear. These are checks to make, not proof that HMRC has made an error; an unfamiliar amount may have a valid explanation.
What to do if something does not match
Correct wrong or missing details through HMRC’s online Income Tax service where possible. If you cannot use it, contact HMRC and explain which entry you are querying. Keep the payslip, coding notice and relevant benefit or pension information available so you can describe the discrepancy clearly.
HMRC will decide whether the corrected information requires a new code and, if so, send the update to the relevant employer or pension provider. Do not assume a change will affect a payment already being processed. Check a subsequent payslip against the code in your HMRC record. If the codes differ, ask payroll whether it has received and applied the update.
If a wrong code meant too much tax was taken, HMRC will usually correct it through your code for the rest of the year, or repay the overpayment after the tax year ends, normally with a P800 calculation. Check that calculation when it arrives, because it can only reflect the information HMRC holds.
A K code is a reason to inspect the underlying information, not proof that too much tax has been paid. Identify the benefit, income estimate or earlier underpayment behind it, then confirm or correct that entry with HMRC.
David Prior
David Prior is the editor of Today News, responsible for the overall editorial strategy. He is an NCTJ-qualified journalist with over 20 years’ experience, and is also editor of the award-winning hyperlocal news title Altrincham Today. His LinkedIn profile is here.
