How K codes work mechanically
A K code means HMRC has decided your net personal allowance is negative for this tax year. Instead of subtracting the allowance from your income before tax, the K code adds the negative-allowance amount to your taxable income.
The K number × 10 = the annual additional taxable income added.
| K code | Added income | Example impact |
|---|---|---|
| K100 | £1,000 | Small adjustment |
| K475 | £4,750 | Mid-size benefit in kind |
| K1000 | £10,000 | Large benefit in kind or owed tax |
| K1500 | £15,000 | Substantial benefits + adjustments |
Worked example — K500 on £40,000 salary
K500 means £5,000 of additional taxable income.
Effective taxable position: - Salary: £40,000 - + K-code addition: £5,000 - - personal allowance: £0 (none applies on K) - = Taxable income: £45,000
Income Tax (basic rate slab): - £45,000 × 20% = £9,000 Income Tax - Plus 8% NI on income between £12,570-£45,000 = £2,594
Total deduction: ~£11,594 Take-home from £40,000 salary: ~£28,406
Compare to 1257L on the same salary: - Taxable: £40,000 - £12,570 = £27,430 - Income Tax: £27,430 × 20% = £5,486 - Take-home: ~£32,320
K500 costs this person roughly £3,914 per year compared to 1257L. That's the cost of the £5,000 added taxable income.
Common causes of K codes
1. Benefits in kind exceeding the personal allowance
The most common cause. A company car with taxable value of £18,000 a year (high-CO2 luxury car) plus private medical of £2,000 = £20,000 of taxable benefits. Personal allowance £12,570 - £20,000 = -£7,430 → K743.
Benefits typically driving large K codes: - Company car with high taxable benefit (Tesla Model S, BMW 7 Series, etc.) - Private medical insurance (especially family cover) - Living accommodation provided by employer - Beneficial loans - Use of company asset (yacht, second home, etc.)
2. Recovery of owed tax from prior years
If HMRC discovers you underpaid tax in a previous year, they typically collect it through your current-year PAYE by issuing a K code. The £ amount of underpayment ÷ 10 becomes part of the K code.
Example: a Self Assessment correction shows you owed £3,400 from 2024/25. HMRC sets up the recovery as £3,400 of negative allowance for 2026/27 → K340 (or a smaller K combined with the personal allowance reduction).
3. Multiple jobs over-applying allowance
If HMRC discovers your second job has also been applying the personal allowance, they reduce or eliminate it on the main job to compensate. In extreme cases (very high secondary income), this pushes the main job into a K code.
4. Pension contributions on net-pay arrangements with significant other income
Less common, but high-earner pension arrangements interacting with multiple income sources can drive K codes.
Why K codes get the 50% rule
By law, the deduction caused by a K code can't exceed 50% of your gross pay in any pay period. If the formula would take more, the excess is carried forward.
This protects employees from K codes that would mathematically take 60%+ of pay (rare but possible with very large K codes on lower salaries).
How to verify your K code is correct
- Log in to HMRC Personal Tax Account at gov.uk/personal-tax-account
- Look up the "current tax code" details — should show the breakdown
- Confirm each component:
- Standard personal allowance: £12,570 for 2026/27
- Less: benefits in kind (each itemised, with the cash equivalent)
- Less: any tax owed from previous years
- = Final allowance (if negative, becomes K code)
- If the breakdown doesn't match your circumstances: raise it via your Personal Tax Account or call HMRC on 0300 200 3300
The most common error: a benefit in kind that ended (e.g. you returned the company car) but HMRC's record still shows it active. This is straightforward to correct with documentation.
K codes and pension contributions
Pension contributions can interact with K codes in helpful ways:
- Salary sacrifice reduces gross income, which doesn't change the K code itself but reduces the income it's applied to — the K-driven Income Tax falls
- Net pay arrangement contributions reduce taxable income, similar to sacrifice
- Relief-at-source contributions don't change the calculation at source (comes out of net), but pension tax relief is added separately
For a K-coded employee, salary sacrifice into pension is often the highest-leverage move — both reducing the K-code drag and benefiting from tax-free pension contribution. Read more about salary sacrifice →
How K codes change
Your K code typically resolves over 1-3 tax years:
- Benefits ending: company car returned → next P11D shows zero → code returns to L
- Owed tax collected: once the recovery completes, code returns to L
- Salary increase past allowance: K code remains until benefits change
You'll receive a P2 'Notice of Coding' letter from HMRC when the code changes. Always read it — the breakdown shows what HMRC believes about your situation.
When K codes signal a problem
A K code that looks too large should be investigated immediately:
- K1000+ on a moderate salary likely means HMRC believes you have very large benefits in kind that you don't actually have
- K appearing suddenly without explanation often means HMRC has assumed a benefit you don't have
- K not matching your actual benefits package means a P11D error somewhere
These are correctable but require active engagement. Don't wait for it to resolve itself — call HMRC if your K code's components don't match reality.
In short
A K tax code adds taxable income rather than giving you an allowance. Common causes are large benefits in kind, recovered tax from prior years, or allowance redistribution across multiple income sources. The K number × 10 = the annual amount added. Verify the components in your HMRC Personal Tax Account. For the full reference, see the tax codes hub → or check any code in the tax code checker →.