Tax Code K700 Explained

What does K700 mean?

K700 is a "negative allowance" tax code. Where 1257L gives you £12,570 of tax-free pay, K700 does the opposite: it adds £7,000 to your taxable pay across the year. HMRC issues K codes when your untaxed income - typically benefits-in-kind such as a company car, fuel benefit, medical insurance, or a state pension - exceeds your personal allowance. Rather than ask you to pay that tax separately, HMRC collects it through your payslip by inflating the taxable amount. The number is calculated as (untaxed income − allowance) ÷ 10, which is why K700 represents £7,000 of "negative allowance". Two protections apply: the regulatory 50% cap (your employer cannot deduct more than 50% of your gross pay through a K code, even if the maths says otherwise) and the requirement that HMRC itemise every adjustment line on your P2 Notice of Coding. K codes are correct when your benefits genuinely exceed your allowance, but they need close attention if a benefit has stopped (return of a company car, end of medical scheme) because HMRC won't reduce the K number until a fresh P11D is filed.

Breakdown of the code

• K

  Letter

  K codes flip the maths: instead of a tax-free amount, this number is added to your taxable income.

• 700

  Number

  Multiply by 10 - £7,000 added to your taxable pay across the year.

Worked example

Senior manager with a company car (P11D £18,000) and medical (P11D £2,200) on £60,000 (paid monthly).

Taxable pay rises to £67,000 - additional ~£2,800/year tax for a higher-rate payer.

Who should be on K700?

• Employees with significant benefits-in-kind (company car, medical, fuel)
• State pensioners receiving employer pension above the allowance
• People repaying a prior-year underpayment through their tax code
• Multiple-source taxpayers where adjustments exceed the allowance

Common problems

• A benefit has ended but the K number has not yet reduced - payroll needs an updated P11D submission.
• Multiple adjustments stacked together can push the K number high enough to hit the 50% deduction cap.
• A prior-year underpayment is being collected over too short a period - request a longer recovery if it causes hardship.

What to do if K700 looks wrong

1. Open your latest P2 in your personal tax account - every adjustment line in a K code is itemised (company car, fuel, medical, prior underpayment).
2. If a benefit has ended (you returned the company car, your medical scheme stopped) ask payroll to file an updated P11D and HMRC will reduce the K number.
3. Confirm the 50% regulatory cap is being applied - your employer cannot deduct more than 50% of your gross pay through a K code.
4. If a prior-year underpayment is being collected, check the HMRC calculation; you can spread it over 2-3 years if it would cause hardship.
5. Call HMRC on 0300 200 3300 to dispute the underlying figures, not just the code.