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Understanding "K" Tax Codes: What They Mean and Why They Matter

  • Writer: Andrew Fraser
    Andrew Fraser
  • Apr 4
  • 2 min read

Among the various tax codes, the 'K' code often causes the most confusion. Unlike other codes that indicate your tax-free personal allowance, a 'K' code signifies that you have taxable benefits or unpaid tax from previous years that increase your taxable income.

Men with calculator, form and pen.

How a "K" Code Works:

Essentially, a 'K' code means that your taxable benefits (like a company car, private medical insurance, or unpaid tax) are worth more than your personal tax allowance. To calculate the amount added to your taxable income, you multiply the number in your 'K' code by 10, just like with other codes.


However, instead of deducting this amount from your earnings, it is added to your income before tax is calculated.

Example:

If your tax code is K500, this means that £5,000 (500 x 10) will be added to your taxable income. So, if your annual salary is £30,000, your taxable income for the year will be calculated as £35,000 (£30,000 + £5,000)


Why "K" Codes Are Used:

  • Taxable Benefits: Company cars, private medical insurance, and other benefits in kind are considered taxable income. A 'K' code ensures that you pay the correct tax on these benefits.

  • Unpaid Tax: If you have unpaid tax from previous years, HMRC may use a 'K' code to recover the owed amount through your current pay.

  • Balancing Tax Liabilities: It's a mechanism used by HMRC to balance out tax liabilities when traditional allowances don't cover the full extent of taxable benefits.


What to Do If You Have a "K" Code:

  • Check Your Payslip and P11D: Your payslip should show your tax code, and your P11D form will detail the taxable benefits you receive.

  • Contact HMRC: If you're unsure why you have a 'K' code or if you think it's incorrect, contact HMRC directly. They can provide a breakdown of the benefits and unpaid tax that are affecting your code.

  • Seek Professional Advice: Tax codes, especially 'K' codes, can be complex. Consulting with a tax professional can help you understand your situation and ensure you're paying the correct amount of tax.


Key Takeaway:

A 'K' code doesn't reduce your tax-free allowance; it increases your taxable income. Understanding this distinction is crucial to managing your tax affairs effectively.

 
 
 

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