K codes are issued by HMRC in very particular circ*mstances and result in more tax being collected in comparison to having a standard tax code.
The K code will be calculated because the tax office believe you should have your tax free personal allowance reduced to allow for more tax to be taken from your salary.
HMRC treats some elements of your tax affairs as extra income and classes them as minus allowances.
If your minus allowances are greater in value than your tax free personal allowance a K code is created.
The tax code system means that your K code should not deduct more than half of your taxable income in that periods pay.
Why have I got a K tax code?
A K tax code is not standard meaning you need to consider what has happened in your case to bring about one being issued by the tax office.
The usual reasons for being given a K tax code are:
- Company benefits like a company car.
- You receive state pension at the same time as other PAYE income.
- You have underpaid tax in a previous tax year.
Your national insurance payments are not effected by having a K code.
HMRC should provide you a notice of coding explaining how your K tax code has been calculated giving a breakdown of what is included in the code.
Your K tax code breakdown can be found in your personal tax account or HMRC app.
K tax code example
A typical cause of a K code for an employee under PAYE is having a company car benefit.
If you receive a company car from your employer that is worth £30,000 the tax office will deduct the value of your car from your tax free personal allowance.
£12570 personal allowance – £30,000 car value = £17430.
HMRC will take the £17430 figure, ignore the last digit and convert it into a tax code of K1743.
To work out the value of the figure being added to your taxable income you need to multiply the figures in your code by 10.
K tax codes and your P11d
Taxpayers who receive a company benefit with a significant value like a company car often receive a K tax code and a P11d.
A P11d is an HMRC form which is produced by employers and given to both the employee and HMRC. The P11d details the type(s) of company benefit you receive and the value of the benefit.
If you receive a company benefit it’s important to check your K tax code and your P11d for accuracy especially when something changes.
How can I check my K tax code?
You can find your K tax code on a recent payslip or though your HMRC online personal tax account.
For people with a company benefit like a company car it’s vital that HMRC are notified of any change in the benefit or if it stops altogether.
If the tax office are not updated you will either underpay or overpay tax because your tax code will not reflect the correct benefit figure.
Contact HMRC about your K tax code
If you have a K code and you don’t have any company benefits and have not been sent an explanation from HMRC you will need to get in touch with HMRC (contact information here) to find out.
The tax office normally send you a notice of coding P2 which gives you information on how they have worked out your K tax code. The content of your notice of coding should be checked by you for accuracy.
A K code can be amended but sometimes HMRC needs you to help them get your code right by contacting them to let them know why an adjustment is needed.
