How K codes work in 2025/26
K codes are issued when your taxable allowances and reliefs are exceeded by deductions for benefits-in-kind, untaxed income, or unpaid tax. The K code adds extra income to your taxable pay each pay period, ensuring HMRC collects the correct tax via PAYE without waiting for a self-assessment.
How to read a K code: The number multiplied by 10 (plus 9 for the rounding convention) is the additional taxable amount. So K500 means £5,009 of extra notional income added to your gross pay before tax bands apply.
Common reasons for a K code:
- Company car benefit (BIK) — a £600/month BIK = £7,200/year of benefit, which exhausts most or all PA.
- Private medical insurance benefit.
- Untaxed pension income — State Pension is paid gross and counts as taxable income against your allowance.
- Underpayment of tax from prior year — coded for collection in current year.
- Multiple jobs with allowance fully used in main job, and benefits in second.
The "9" added comes from HMRC's rounding rule: the actual allowance/deduction is the code number × 10 plus 9 (for technical reasons related to rounding down for code calculations historically).
The 50% cap and pay-period mechanics
HMRC regulation 7 caps the tax deducted under any code (including K codes) at 50% of pay per pay period. So if you earn £2,000/month and the K code's additional income would push tax above £1,000, only £1,000 is deducted and the balance carries forward to next month or is reconciled at year-end.
This safety net prevents punitive deductions but doesn't reduce the total tax owed — it just smooths the deduction. If your K code is so large that tax would normally exceed 50%, you should expect a year-end balancing payment via P800 or self-assessment.
Switching off a K code: If you sell your company car, downgrade benefits, or settle the underlying issue (e.g. State Pension stops), inform HMRC immediately. They'll issue a corrective code (often back to a 1257L cumulative). Failure to update the code means continued over-deduction until year-end reconciliation.
Three worked examples (UK 2025/26)
Example 1: Company car driver, K500
Mark drives a £35,000 BMW with 25% BIK = £8,750/year. He earns £55,000 salary. PA £12,570 less benefit £8,750 = £3,820 effective allowance, but with rounding HMRC issues K500 (negative £5,009).
Calculation: Taxable income on K500 = £55,000 + £5,009 = £60,009. Basic £37,700 × 20% = £7,540. Higher £22,309 × 40% = £8,924. Total tax £16,464. Vs cumulative no-benefit (1257L on £55k): basic £7,540 + higher £1,892 = £9,432. Extra tax £7,032 — exactly the BIK × marginal rate band crossings.
Example 2: State Pension + part-time work, K100
Norman receives State Pension £11,973 and works part-time earning £8,000.
Calculation: Total income £19,973. PA £12,570 used by State Pension first, £597 spillover. Effective allowance against employment £597. HMRC may issue K100-ish to claw back the State Pension's tax that's not deducted at source. K100 adds £1,009 to employment income → taxable employment income £8,000 − (-£1,009 effective allowance) is roughly £9,009 taxable at 20% = £1,801.80.
Example 3: Multiple BIKs forcing K700
Aisha has £42,000 salary plus company car BIK £9,000 + medical insurance £1,500 + childcare voucher reduction £900 = £11,400 of benefits. PA £12,570 − £11,400 = £1,170 net allowance, rounded to K-something. After HMRC adjustments, K700 likely (negative £7,009).
Tax under K700: Adjusted taxable £42,000 + £7,009 = £49,009. £37,700 × 20% + £11,309 × 40% = £7,540 + £4,524 = £12,064. Plus NI separate.
Common mistakes to avoid
- Believing K codes mean you owe extra tax beyond what the code reflects — they're just a way of collecting via PAYE.
- Not informing HMRC when benefits change (e.g. car sold) — code stays K, over-deducting until year-end.
- Confusing K code with BR — BR is no allowance, K is negative allowance (worse).
- Forgetting the 50% cap means deductions may roll over rather than fully reflect tax due — year-end balancing payment surprise.
- Assuming employer payroll handles K codes correctly — sometimes they don't and HMRC's online portal shows the discrepancy.
- Ignoring the breakdown in HMRC Personal Tax Account — it itemises every reason for the K code.
When to use this calculator
Use this calculator any time HMRC issues you a K-prefix code. Verify the breakdown via your Personal Tax Account. Re-run after major life events: company car change, medical insurance start/stop, State Pension start, retirement. The K code can change frequently (annually or mid-year) as benefits adjust.
Regional differences (Scotland, Wales, Northern Ireland)
Tax codes are issued by HMRC and apply to UK-wide employees. Scotland uses tax codes prefixed "S" (e.g. S1257L) to indicate Scottish income tax bands (Starter 19%, Basic 20%, Intermediate 21%, Higher 42%, Advanced 45%, Top 48%) — the numerical allowance portion is the same as rUK. Wales uses "C" (e.g. C1257L) for Welsh resident, but Welsh rates currently match UK. Northern Ireland uses standard UK codes throughout. The numerical part of the code (e.g. 1257 for £12,570 PA) is identical across the UK; only the prefix changes the band structure.