TL;DR: A K tax code is the opposite of an L code: instead of giving a tax-free personal allowance, it adds an extra amount to the taxable pay each pay period, because deductions (such as taxable benefits, untaxed income, or unpaid tax from earlier years) exceed the personal allowance. The number after the K tells the employer how much extra to add: K500 means add 5,000 pounds of notional taxable income to the year's pay, spread across pay periods. By statute, no more than half of an employee's pay in any pay period can be taken in tax, which limits how much a K code can collect at once. The over-collection is recovered later through coding adjustments or a P800 reconciliation.
Last reviewed May 2026
Most UK PAYE tax codes look like 1257L: a number representing the personal allowance and a letter indicating how the code is applied. K codes are different. They have a "K" prefix instead of a suffix, and the number that follows represents an addition to taxable pay rather than a tax-free allowance. The structure can confuse people the first time they see it on a payslip.
K codes apply when the deductions HMRC needs to make from someone's allowances (typically the value of a taxable benefit, an untaxed source of income, or unpaid tax from a previous year) are more than the personal allowance itself. Rather than ending up with no allowance, the employee ends up with a negative allowance, expressed as a K code.
This guide explains how the K code is calculated, how the employer applies it, the safeguard that limits how much tax can be deducted in any one pay period, and what to do if the K code looks wrong.
How a K code is calculated
HMRC starts from the standard personal allowance for the tax year (currently 12,570 pounds, shown as 1257). It then adjusts for items that increase or reduce the allowance. Adjustments that increase the allowance include flat-rate expense claims and the marriage allowance (received). Adjustments that reduce the allowance include taxable benefits in kind (such as a company car), untaxed income that HMRC wants to collect through PAYE (such as State Pension), and unpaid tax from a prior year.
If the deductions exceed the personal allowance, the result is a negative figure. HMRC takes that negative figure (rounded down) and shows it as a K code. So an employee whose deductions exceed allowances by 5,000 pounds receives a K500 code; one whose deductions exceed by 12,000 pounds receives a K1200 code.
The employer takes the K code and adds 1/12 (or 1/52, depending on pay frequency) of the negative allowance to the employee's gross pay each period before applying tax. The result is that more tax is collected at each pay date than would be the case under any L code.
The most common reasons for a K code
The single most common cause of a K code is the State Pension being collected through a PAYE source. The State Pension is taxable but is paid gross by the Department for Work and Pensions. HMRC collects the tax due on it by reducing the personal allowance available against the recipient's other PAYE income (typically a private or workplace pension). For someone with a State Pension comparable to or higher than the personal allowance, the result can be a K code on the other pension.
Other common causes include high-value taxable benefits (a company car with a high benefit-in-kind value, particularly diesel cars on older emissions standards), substantial untaxed dividend or savings income that HMRC is choosing to collect through PAYE, and underpayments of tax from a previous year being collected via the code. Where multiple deductions stack up at once, the K code can become quite large.
Each adjustment is set out in the coding notice (form P2) HMRC sends when the code changes. The notice itemises every component used in the calculation and shows the resulting code. The personal tax account on GOV.UK shows the same information.
The 50 percent overriding limit
Without a safeguard, a very large K code could result in tax being deducted that swallowed an employee's entire pay packet. HMRC therefore applies a statutory overriding limit: no more than 50 percent of an employee's gross taxable pay in any pay period can be deducted as tax under the K code mechanism.
The 50 percent cap means that tax that would otherwise have been collected in a particular pay period is held back and rolled forward. The employer's payroll software handles this automatically. Over the course of the year, the cap is intended to smooth out very large K-code deductions to avoid leaving the employee with negligible take-home pay in any one period.
If the cap means not all the tax can be collected by the end of the tax year, HMRC reconciles the position after 5 April. The remaining underpayment is normally collected through a future code change or asked for directly. The cap is a cash flow protection, not a write-off.
K codes and pension income
K codes are particularly common among pensioners with both a State Pension and one or more occupational or private pensions. The State Pension is paid gross, but it counts towards the recipient's total taxable income. HMRC collects the tax by reducing the personal allowance available against the other pensions; if the State Pension is large enough, the personal allowance disappears and a K code is issued on the next-largest pension source.
Pensioners often see this for the first time when their State Pension starts. The other pension provider continues to pay the same gross amount but applies a K code, which produces a smaller net pension. The mathematics are correct (the same total tax is paid as would have been paid if all the income were taxed in one place) but the experience can feel like a deduction without notice.
HMRC may issue a K code to a different pension source from year to year, depending on which provider sends data first or which has the largest income. Pensioners with several pensions can ask HMRC to allocate the K code to a particular source if the timing or amount makes that easier to manage.
Reading a K code on a payslip
On the payslip, a K code looks like "K500" or "K1200" rather than "500K" or "1200K". The K is at the start, and the digits represent the negative allowance in tens of pounds. K500 means 5,000 pounds of additional notional taxable income for the year is added to the employee's pay; K1200 means 12,000 pounds.
The actual extra tax collected depends on the employee's marginal rate. K500 on a basic-rate taxpayer collects roughly 1,000 pounds of extra tax across the year (5,000 pounds at 20 percent). On a higher-rate taxpayer, the same K500 collects 2,000 pounds (5,000 pounds at 40 percent). The K code is a mechanism, not a fixed-figure tax bill.
K codes can be operated on a cumulative or non-cumulative (Week 1 / Month 1) basis, just like other codes. The non-cumulative version recalculates the position each period without reference to the year to date, useful where the position is uncertain.
What to do if a K code looks wrong
The first step is to understand the components. The coding notice (form P2) shows them line by line. Common errors are: a benefit in kind no longer applies (the company car has been returned), an untaxed source has stopped (a savings bond has matured), or a previous-year underpayment has been over-estimated.
The personal tax account on GOV.UK is the fastest way to update HMRC about a change. The change is normally reflected in a new code issued to the employer or pension provider within a few weeks. Where the K code arose from an HMRC estimate that turns out to be wrong, asking for the figure to be revised can substantially reduce the K code (and the consequent monthly tax) immediately.
Where the K code is correct (the deductions genuinely exceed the personal allowance) the right answer is not to fight the code but to plan around it. Employees can sometimes elect to have benefits in kind taxed differently (for example, payrolling benefits), or take voluntary action to reduce the underlying issue, but the basic principle is that the same total tax is owed regardless of the code mechanism used to collect it.
Disclaimer: This article is general information about the K tax code and how UK PAYE codes are constructed. It is not personal tax advice. The right tax code in any individual case depends on the income sources, allowances, deductions and reliefs that apply. Anyone unsure about their code should check the personal tax account on GOV.UK or contact HMRC.
Frequently asked questions
What does a K tax code mean?
A K code adds a notional amount of taxable pay to the employee's actual pay before calculating tax, because the value of taxable benefits, untaxed income or other deductions exceeds the personal allowance. The number after the K shows the amount added across the year, expressed in tens of pounds.
Why do I have a K code on my pension?
The most common reason is that the State Pension is being received in addition to one or more private or workplace pensions. The State Pension is taxable but paid gross, so HMRC collects the tax by reducing the personal allowance available against the other pension and, if the State Pension is large enough, by switching to a K code.
Can my employer take all my pay in tax under a K code?
No. Statutory rules cap PAYE deductions under a K code at 50 percent of gross taxable pay in any pay period. Any tax that would have been due above that cap is rolled forward; if not collected by the year-end, it is reconciled by HMRC in the following tax year.
How do I read a K code like K500?
K500 means HMRC has calculated a negative allowance of 5,000 pounds across the tax year. Spread across 12 monthly pay periods, that adds 416.67 pounds of notional taxable pay each month before tax is calculated. The actual extra tax depends on the employee's marginal rate.
What if the K code looks too high?
The coding notice (form P2) and the personal tax account both show the components HMRC has used. Where one of those (such as a benefit in kind or an estimated underpayment) is no longer accurate, the change can be reported online or by phone. HMRC will normally issue a corrected code to the employer or pension provider.
How we verified this
The construction of K codes, the 50 percent overriding limit and the cumulative versus non-cumulative operation reflect HMRC's published Pay As You Earn manual and the Income Tax (Pay As You Earn) Regulations 2003. The coding-out of State Pension and other untaxed income, and the use of the personal tax account to update coding details, reflect current GOV.UK guidance. The role of the form P2 coding notice and the form P800 reconciliation are taken from HMRC's standard PAYE administration. Figures and procedures should be reconfirmed on GOV.UK as bands and limits change at fiscal events.
