Tax code K — the “negative allowance” prefix

What this code means

Per gov.uk's tax-code guidance, the K prefix is the mirror image of the L suffix. A normal code like 1257L treats the number as a tax-free allowance. A K code treats the number as an additional amount of taxable pay. K500 means “add £5,000 to gross pay before applying the bands”. K1257 would add £12,570, essentially doubling the band starting point.

HMRC needs the K mechanism because some people receive taxable income that PAYE cannot deduct from directly, State Pension, untaxed rental, dividends above the dividend allowance, savings interest above the savings allowance, or benefits in kind whose value is so large the normal “reduce the allowance” approach runs out of allowance. K lets HMRC keep collecting the tax through payroll, with a safety net: per gov.uk the K-code deduction cannot exceed 50% of gross pay in any pay period (“overriding limit”).

• K500 = +£5,000 of taxable pay. Add the K number × £10 to your gross before the bands apply.
• 50% regulatory limit. PAYE under a K code is capped at half of gross pay in any single pay period.
• K is the prefix, not a suffix. Distinct from L, M, N, T suffixes — see every UK tax-code letter explained.

Who gets a K code

Per HMRC's coding rules, K codes are issued when the negative items (untaxed income, large benefits in kind, recovery of unpaid tax) exceed your tax-free allowance. The most common reasons quoted on coding notices (form P2) are below.

Company car and other benefits in kind exceed allowance

Per gov.uk, taxable benefits in kind (company car, fuel benefit, private medical insurance, accommodation) are usually collected by reducing your code. When the cash-equivalent value of the benefits exceeds £12,570, the code flips negative and becomes a K code. The number after K is the excess divided by ten.

State Pension larger than the personal allowance

State Pension is taxable but paid gross. HMRC collects the tax on it by reducing your other PAYE code, for example on an occupational pension. If your State Pension is larger than £12,570, the reduction tips negative and the code becomes K.

Substantial untaxed rental, savings or dividend income

PAYE cannot reach property, savings or dividend income directly. HMRC may estimate the tax owed and code it against your main PAYE source. Large estimates can push the code into K territory.

Recovery of prior-year underpayment via coding

If you owe HMRC tax from a previous year (often shown on a P800) and the amount is large enough, HMRC can collect it by reducing this year's code. On top of other reductions, this can produce a K code.

Combination of several smaller items

A modest company car plus State Pension plus rental income individually might not produce K, but together they can. Your P2 coding notice lists each item, read it carefully to understand the build-up.

Worked example — £30,000 gross on K500 vs 1257L

£30,000 main salary in England, Wales or Northern Ireland for 2026/27, compared between K500 and 1257L:

The 50% overriding limit would kick in if the monthly K-code deduction tried to exceed half of gross pay in a given period. On £30,000 / 12 = £2,500 gross per month, the cap is £1,250, comfortably above the £583 monthly PAYE in this example, so the cap does not bite. On lumpy pay (commission, bonuses) it can.

Common mistakes & red flags

• Old benefit in kind still in the code. Company car returned, private medical cancelled, accommodation given up, tell HMRC so the K figure can drop.
• Prior-year underpayment already collected. Once cleared, the K reduction should fall away. If it persists, HMRC may be double-collecting.
• State Pension figure wrong. HMRC's State Pension estimate can drift from the DWP figure, verify in the personal tax account.
• 50% limit hiding a bigger bill. If your K-code deductions are being capped by the 50% limit, HMRC is parking liability for self-assessment. Plan cash for that.

What to ask payroll

• “Which HMRC coding notice and date applied the K code?”
• “Is the K code cumulative or W1/M1?”
• “Was the 50% overriding limit applied this pay period?”
• “What benefits in kind are you payrolling for me, and at what value?”
• “Can you confirm the year-to-date taxable pay and PAYE on file?”

How to fix it if the K code looks wrong

1. Read your P2 coding notice line-by-line. Sign in to your HMRC personal tax account — each negative item is listed.
2. Check each item is still current. Benefits ended? Underpayment already collected? State Pension figure correct?
3. Tell HMRC about changes. Use the online service or call PAYE on 0300 200 3300.
4. Wait for the re-issued code. HMRC will normally move you back to an L-suffix code if the negative items have cleared.

Frequently asked questions

What does a K tax code mean?

Per gov.uk, a K tax code (for example K500) means you have a negative personal allowance. The number after the K is added to your taxable pay rather than subtracted from it. K500 means £5,000 is added to your gross pay before PAYE is calculated. K codes appear when untaxed income, taxable benefits in kind or unpaid tax owed exceed your tax-free personal allowance.

Why have I been given a K code?

Common reasons include a company car or other benefits in kind worth more than £12,570, State Pension that is larger than the personal allowance, a substantial untaxed rental or savings income, or recovery of a prior-year underpayment. Your HMRC P2 coding notice spells out which negative items add up to the K figure.

Is there a limit on how much PAYE a K code can take?

Yes. Per gov.uk, the PAYE deducted under a K code cannot exceed 50% of the gross pay in that pay period, the so-called "regulatory limit" or "overriding limit". Anything above 50% is carried forward and collected later, either in subsequent pay periods or through self-assessment.

How much extra tax does K500 take on £30,000?

On K500, £5,000 is added to your taxable pay. So £30,000 becomes £35,000 of taxable pay. PAYE at the 20% basic rate is therefore £7,000, about £1,000 more than the £6,000 you would owe with no allowance (0T). Versus 1257L (£3,486 PAYE) the gap is £3,514 a year.

How do I get a K code changed?

Tax codes are set by HMRC. Sign in to your HMRC personal tax account, review the P2 coding notice, and confirm whether the underlying items are still correct (benefit in kind still in place, State Pension figure right, underpayment still due). Use "Tell HMRC about a change" or call PAYE on 0300 200 3300 to update anything that has changed.

Related reading

• Tax code 400L — reduced allowance

  The same logic before the allowance tips negative.

• Tax code 1257L — standard allowance

  The baseline code K replaces.

• Tax code 0T — no allowance, full bands

  The step between L and K, zero, not negative.

• Every UK tax code, explained one page at a time

  The full tax-code index hub.

• Wrong tax code checker

  Run a guided check.

Last reviewed

Educational guidance only — not regulated tax, financial or payroll advice. Always verify with HMRC or your payroll team before acting. To run a real check, the wrong-tax-code checker is the place to begin.