What is the K tax code?

Sometimes, workers who get benefits from their employers will be placed on what is known as a K tax code.

UK tax codes can be confusing, so let’s start from the top – a tax code is something used by your employer to work out how much tax you need to pay.  The K tax code is just one of many tax codes. Also, it’s pretty common for tradies and construction workers to be placed on one. In layman’s terms, the K tax code means you’re paying more tax because you owe HMRC money from a previous tax year. 

Want to hear more? Give this guide a quick once over and find out what the K tax code is exactly, why you might have one and how to get it sorted.

What is a K tax code? 

A K tax code means that you owe the tax man from the last tax year and you owe them more than your tax-free personal allowance, which is £12,750 for most people. Providing you with a K code means that HMRC is able to collect the tax owed from the previous year, in this tax year. This is done by inflating your current year income, for tax calculation purposes.

Why you may have a K tax code 

There are a couple of reasons. 

It could be because you’ve got a company car, which means you’ll need to pay some ‘Benefit-in-Kind’ tax. Or, your employer might pay for your accommodation, or you could get medical insurance as a benefit. These benefits (and there are a fair few!) are taxable. Also, it may be your state pension or tax owed in previous years was greater than your personal allowance.

K tax code example

Here’s how a K tax code works, in simple terms:

  • Let’s say you were on the 1257L tax code (meaning you receive the full personal allowance of £12,570). 
  • You receive a company car, with the Benefit-in-Kind on this totting up to £22,000. 
  • HMRC deducts £22,000 from your personal allowance (£12,570), leaving you with minus £9,430.
  • Because you owe HMRC tax (£9,430), your tax code will be K943.
  • The £9,430 will be added to your taxable pay by your employer every month in equal instalments of £785.83 per month (£9,430/12), meaning you pay more tax each month than the income that you actually receive.

How much tax will you pay on a K tax code?

It’s simple, just check your payslip. The K tax code has a number after it. Let’s say yours is K200. Times that number by ten (£2000) and that’s what you owe HMRC.  The taxman then adds that £2000 to your taxable income. So if you normally earn £26,000, HMRC will work on the basis that you’ve earned £28,000 that year. Then, the extra £2000 is taken in equal instalments across the tax year, alongside your normal tax payments. 

How to change your K tax code 

You’ll need to get in touch with HMRC to change your K tax code. They’ll ask you for some more information, to make sure they haven’t miscalculated what you owe. If you do end up overpaying, you’ll be due a tax refund. We’ll sort this out for you in no time – just get in touch

So to recap, you’ll have a K tax code if you your deductions due for company benefits, state pension, or tax owed from previous years are greater than your standard tax free personal allowance. But you can give HMRC a shout at any time if you reckon they’ve got it wrong.

If you think you might be due a tax refund, Brian Alfred can help. We’ll ask you some straightforward questions and take care of the rest, and you’ll get a tax rebate within 24 hours. To chat with one of the team and get started, request a callback here.