📉 Negative Personal Allowance

K Tax Code Explained

A tax code starting with 'K' means your untaxed income or company benefits exceed your Personal Allowance. Here's how it works.

Most tax codes (like 1257L) tell your employer how much tax-free pay you are allowed before they start deducting tax.

A K code works in reverse. It tells your employer to adda notional amount to your salary before calculating tax. It essentially means you have a "negative" Personal Allowance.

How to read a K tax code

The number in a K code indicates how much is added to your taxable income. To find the exact amount, multiply the number by 10 and add £9.

Example: Code K497
497 × 10 = £4,970
Add £9 = £4,979

This means £4,979 will be added to your taxable pay over the year (about £415 per month). You then pay tax on your actual salary plus that extra amount.

Common reasons for a K code

  • You receive a valuable company car or private medical insurance.
  • You receive the State Pension while continuing to work (State Pension uses up your Personal Allowance, and the remainder forms a K code).
  • HMRC is collecting unpaid tax from previous years.
  • You have substantial untaxed income (e.g., rental income or savings interest).
🛡️ The 50% Rule Protection

Because a K code adds "fake" income to your payslip for tax calculation, it could theoretically result in a massive tax deduction. However, by law, your employer cannot deduct more than 50% of your gross pay (pre-tax pay) in income tax in any single pay period.

Source: GOV.UK Tax Code Letters

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FAQs

What does a K tax code mean?+
A tax code beginning with 'K' (e.g., K497) means that you have deductions (like untaxed income, company benefits, or state pension) that are greater than your tax-free Personal Allowance. Instead of giving you a tax-free amount, a K code adds a 'notional' amount to your taxable income to ensure the right amount of tax is collected.
Why have I been given a K tax code?+
You might get a K code if: you receive a company car or health insurance (Benefits in Kind); you receive the State Pension while still working; you owe tax from a previous year that HMRC is collecting through your payroll; or you have untaxed income (like savings or rental income).
How do I calculate the extra tax from a K code?+
Multiply the number in the K code by 10 and add £9. This is the extra amount added to your taxable income. For example, K497 means £4,979 (497 x 10 + 9) is added to your taxable pay before tax is calculated. You'll pay 20%, 40%, or 45% tax on this extra amount.
Is there a limit on how much tax a K code can take?+
Yes. HMRC regulations state that an employer cannot take more than 50% of your pre-tax pay (gross pay) in income tax in any single pay period. This protects you from having your entire paycheck wiped out by a K code.
What should I do if I think my K code is wrong?+
K codes are often wrong if your circumstances change (e.g., you give back a company car). You should log into your Personal Tax Account on GOV.UK or call HMRC immediately to update your estimated benefits and income. If the code is wrong, you are overpaying tax.