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HMRC internal manual

PAYE Manual

PAYE operation: pensioners: K codes and state pensions

The primary intention of K codes is to collect tax on benefits in kind and state benefits. However there may be cases where the inclusion of the state benefit generates a K code above the 50 per cent limit. In these cases where state pension / benefits are the only deduction in the code, the state pension / benefit should not be reduced. The correct amount of state pension / benefit should be coded.

If the limit is only exceeded in one year the underpayment may be collected by means of a voluntary payment or coded if practical to do so. Where the 50 per cent K code limit is constantly being exceeded you should consider putting the case into SA.

Where the K code exceeds the 50 per cent limit the code still operates but the employer limits the deduction to 50 per cent of the pay or pension and any underpayment is dealt with after the year end. This will be by end of year reconciliation in non-SA cases and SA for others.

Further information on K codes can be found at PAYE11095.

NOTE: From the 6 April 2016, if the S prefix is included, for example, SK100, tax is deducted at the appropriate Scottish rate(s). Further information about Scottish Income Tax is given at PAYE100035.