K Code Adjustment

A K-code is a tax code that begins with the letter K (e.g. K475). It tells the payroll system that your untaxed income - typically taxable benefits in kind, unpaid tax from earlier years, or a state pension above your personal allowance - exceeds your annual personal allowance. The number after K, multiplied by 10, is the amount of extra taxable income to be added to your pay over the year.

Unlike standard tax codes, where the number represents tax-free pay, the K-code adjustment increases taxable pay. Without a K code, an employer cannot collect the extra tax, because the personal allowance has already been wiped out by the untaxed items. The system applies a regulatory limit: a K-code cannot deduct more than 50% of your gross pay in any pay period. If a deduction would exceed 50%, the excess rolls forward to the next period.

Worked example: Daniel has a state pension of £14,000 and a personal allowance of £12,570. The £1,430 over-allocation is converted into a K143 code. His employer adds £1,430 / 12 = £119.17 to each month's taxable pay. On a salary of £36,000 (£3,000/month), taxable pay becomes £3,119.17 per month and PAYE is calculated on that figure. The 50% protection rule never bites at this level. If Daniel's untaxed income jumped sharply mid-year - say a £20,000 P11D adjustment was applied - his K-code might rise to K2143, generating a £1,786 monthly addition; on a £3,000 salary the resulting deduction could exceed 50%, so the surplus would carry forward to the next month. K-code adjustments often surprise employees because tax can fluctuate dramatically; checking the underlying coding notice with HMRC's online service is always the first diagnostic step.