Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

PAYE Manual

From
HM Revenue & Customs
Updated
, see all updates

Coding: codes: how they are used and calculated: K codes

The primary intention of K codes is to

However, the system will allocate a K code in all cases where deductions exceed allowances.

K code example

Current primary employment tax code allowances are 6475 and a company car benefit of 10000 is included in the code. The following steps are applied to calculate the K code

* 6475 - 10000 = -3525
* Drop the last digit and the minus sign = 352
* Reduce the last digit by 1 = 351
* Add a K to the front of the code = K351

Where a K code has been generated you should check that the intended code will not trigger the 50 per cent overriding limit. The system will calculate that the tax due for the individual is equal or more than 50 per cent of their total income and display a message. Take the action given in Action guide tax40002 in these cases.

The tax deducted on any one day cannot exceed 50 per cent of the gross pay for that period. There is no benefit to the employee or HMRC issuing a code where it is known that insufficient tax will be deducted resulting in an underpayment at the end of the year. Depending on the deductions present you may need to consider an alternative way of collecting the tax due, such as asking for a voluntary payment in underpayment cases or putting the case into SA. In these cases you will need to remove any non-PAYE income or underpayments included in the code calculation. On the income, allowances, benefits and deductions area make the appropriate entry in the Non Coded Income field (PAYE130035).

Whether any non-PAYE income can be included in a code depends on the individual’s circumstances. It is not usual to include income returned on the self employment pages of the SA return in the code. Action guide tax40002 can be used to determine what deductions can be included in the code.

NOTE: From 6 April 2016, if the S prefix is included in the tax code eg SK100, tax is deducted at the appropriate total  rate for Scottish taxpayers. Further information is held at PAYE100035.