What is a K Tax Code? Your K Tax Code Explained
A K tax code is issued by HMRC in very particular circumstances and results in more tax being collected in comparison to having a standard tax code.
The K code will be given when HMRC believes that you should have your tax free personal allowance reduced to allow for more tax to be deducted from your income.
Being underpaid tax from a previous tax year or getting a company benefit are the most common reasons for a K tax code.
The tax code system means that your K code should not deduct more than half of your taxable income in that periods pay.
A K tax code can have a significant impact on your take home pay and checking it for accuracy is recommended to prevent overpaying income tax.
Why have I got a K tax code?
A K tax code is not a standard tax code 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:
- Valuable 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 affected by having a K code.
How can I check my K tax 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.
You can find your K tax code on a recent payslip and a breakdown through your HMRC online personal tax account or the HMRC app.
For people with a company benefit like a company car it’s vital that HMRC are notified of any changes in the benefit including 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.
How much tax do I pay with a K tax code?
A K tax code doesn’t mean you will be subject to different rates of tax but without any personal allowance you will pay more tax in comparison to a code including your tax free allowance.
As an example you are issued with a K400. Multiply the figure after the letter K by ten (which is £4000), and that’s the additional amount of tax HMRC want you to pay.
HMRC adds the £4000 to your taxable income so the tax being collected is distributed evenly over the tax year at the same time as your normal tax deductions.
So if your usual income is £30,000 HMRC will calculate your tax deductions as if you’ve earned £34,000 in that year.
The normal tax brackets and rates of tax apply to your income and will remain unaffected by a K code.
K tax code example
HMRC treats some parts 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.
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.
£12,570 personal allowance – £30,000 car value = £17,430.
HMRC will take the £17,430 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.
K tax code and tax rebates
An incorrect K code can result in too much tax being paid and a rebate being due.
When a K tax code is corrected within a current tax year a refund should be repaid automatically through your salary.
For a K code overpayment from a previous tax year you may need to communicate with HMRC if you don’t receive a repayment automatically and double check any P800 tax calculations HMRC sends you.
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 more.
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.
