Tax Code K Explained UK 2026/27: Why You Have a K-Code & What to Do

A UK tax code starting with K (K475, K325, K1100 and similar) means your deductions exceed your Personal Allowance. You have a negative allowance - instead of receiving tax-free income each pay period, additional taxable income is added on. K-codes are unusual and confusing; this guide explains what triggers one, how the maths works, and what to do if you think yours is wrong.

What a K code means

A standard code like 1257L means: "tax-free allowance of £12,570 (1257 × 10)". Reading the same way:

• K475 means: "negative allowance of £4,750" → £4,750 added to your taxable income each year.
• K325 means: "negative allowance of £3,250" → £3,250 added to your taxable income each year.
• K1100 means: "negative allowance of £11,000" → £11,000 added.

The K is not a multiplier or a special rate. It just inverts the sign of the allowance. Your taxable pay each period becomes:

Period gross pay
+ (1/52 weekly OR 1/12 monthly OR 1/13 four-weekly) of the K-code amount
= Taxable pay this period

PAYE then applies the standard band rates (20% / 40% / 45%) to the resulting figure.

What triggers a K code

Three common patterns:

1. Substantial benefits in kind (BIK) exceed the Personal Allowance

This is the most common cause. Your employer reports BIKs to HMRC via the P11D - company car, private medical insurance, employer-provided accommodation, beneficial loans. HMRC translates these into a tax-code reduction so that the BIK tax flows through PAYE instead of through Self Assessment.

For a higher-paid employee with:

• Company car BIK: £8,000
• Medical insurance BIK: £1,500
• Beneficial loan BIK: £600

Total BIK: £10,100. Set against the £12,570 Personal Allowance, your effective allowance becomes £2,470. Code: 247L.

If BIKs exceed the Personal Allowance:

• BIK total: £18,000
• Personal Allowance: £12,570
• Negative allowance: −£5,430
• Code: K543

See our P11D guide and company car tax guide for the BIK detail.

2. Recovery of a prior-year tax underpayment

If you owed tax from a previous year (e.g. an end-of-year P800 reconciliation showed an underpayment under £3,000), HMRC can collect it through your current-year tax code instead of demanding a lump-sum payment. The unpaid amount is divided across the new tax code as a deduction.

For example, if you owe £1,200 from 2024/25 and HMRC chooses to collect via PAYE in 2026/27, your current-year tax code is reduced by £1,200/0.20 = £6,000 of allowance (so they collect £1,200 of tax over 12 months at the basic rate). If your other adjustments already use most of your Personal Allowance, this can push the code into K territory.

3. State Pension or other untaxed income via PAYE

If you receive State Pension (which is taxable but not taxed at source), HMRC may collect the tax on it through your employment PAYE code. State Pension is added as a "deduction" against your Personal Allowance.

For a State Pension recipient receiving £11,500/year State Pension AND working part-time:

• Personal Allowance: £12,570
• State Pension deduction: £11,500
• Remaining allowance: £1,070
• Code: 107L (close to K territory but still positive)

A higher State Pension or additional benefits-in-kind from work tips this into K territory.

How K codes are calculated each pay period

PAYE applies the K-code on a cumulative basis by default (just like positive codes). Each pay period:

1. Calculate your year-to-date gross income.
2. Add the year-to-date proportion of the K-code value (e.g. for K475 in month 6: £4,750 × 6/12 = £2,375).
3. The total is your year-to-date taxable income.
4. Apply the standard band rates to find total annual tax due.
5. Deduct year-to-date tax already paid.
6. The difference is what comes out this period.

The 50% cap (the "regulatory limit")

HMRC's 50% cap prevents a K-code from removing more than half of your gross pay in any pay period. This stops a sudden K-code from reducing someone to zero or negative net pay.

For a £2,500/month gross with K543:

Gross pay:                       £2,500.00
+ 1/12 of £5,430:                  £452.50
Taxable pay this period:         £2,952.50
PAYE at 20%:                       £590.50

CAP CHECK: 50% of £2,500 = £1,250 maximum tax
£590.50 < £1,250, so no capping needed. Tax = £590.50.

If you had a much higher K-code or much lower pay, the cap kicks in:

Gross pay:                       £1,800.00
+ 1/12 of £15,000 (K1500):       £1,250.00
Taxable pay this period:         £3,050.00
PAYE at 20%:                       £610.00

CAP CHECK: 50% of £1,800 = £900 maximum tax
PAYE before cap:                   £610.00
Capped at:                         £900.00
Actual deduction:                  £610.00 (under cap)

If PAYE-before-cap exceeded the cap, the under-collected amount carries forward to subsequent pay periods or to year-end reconciliation.

What to do if your K code looks wrong

Step 1 - Check your P2 PAYE Coding Notice

HMRC issues a P2 every time your code changes. The P2 lists every component making up the code:

• Personal Allowance: £12,570
• Less company car: −£8,000
• Less medical insurance: −£1,500
• Less prior-year underpayment recovery: −£3,000
• Net: −£70 → code K7

You can see your P2 on your HMRC Personal Tax Account (covered in our PTA walkthrough). Read each line carefully.

Step 2 - Identify wrong components

Common errors:

• Company car still on file after you returned it. Tell HMRC the date you returned the car; they'll remove the BIK from the date of return.
• Medical insurance you cancelled. Same fix.
• Prior-year underpayment recovery from 4+ years ago that was already settled. HMRC sometimes leaves stale recovery codes on file. Provide evidence (bank statement, HMRC receipt) of the original payment.
• State Pension figure wrong. State Pension is paid by DWP to HMRC's data; if the figure HMRC has is wrong, contact DWP first.

Step 3 - Update HMRC

For most BIK errors, you can update from your PTA directly. For more complex situations (prior-year underpayment dispute, State Pension figure correction), call HMRC on 0300 200 3300 with your NI number and PAYE reference.

HMRC then issues a corrected P6 to your employer's payroll. The new code applies from the next pay cycle, and any over-deduction is automatically refunded through PAYE in the same period.

When a K code is correct

If your BIKs really do exceed your Personal Allowance, a K code is the correct mechanism. The taxes you'd otherwise owe via P11D + Self Assessment are instead collected smoothly through PAYE every month.

Don't try to "remove" a legitimate K code - it just shifts the tax liability into a year-end lump sum, which is usually less convenient.

K vs negative allowance vs S0T or 0T

K codes are different from 0T and BR - both of those mean "no allowance" but don't add anything to your income. K codes go further: they actively increase your taxable income by the negative-allowance amount.

The order of severity for a basic-rate employee earning £40,000 with no other income:

• 1257L (standard): about £5,486/year tax
• 0T (no allowance): about £8,000/year tax
• K200 (small negative allowance): about £8,400/year tax
• K1000 (large negative allowance): about £10,000/year tax
• K1500 (very large negative allowance): about £11,000/year tax

If your K code seems disproportionate to your circumstances, query it.

Disclaimer

PayslipIQ provides automated educational guidance based on the figures you supply. It is not regulated tax advice. K-codes can be technically complex, especially when interacting with multiple BIKs and prior-year reconciliations. For substantial discrepancies or contested HMRC determinations, contact HMRC on 0300 200 3300 or use a CTA-qualified tax adviser.