K codes: the one that adds instead of subtracts

This site is an independent UK tax-code explainer. We detail the mechanics of the tax system. We do not hold your data or give personal tax advice.

What a K code does

A K code reverses the normal operation of the payroll system. Instead of granting a tax-free allowance, it adds a notional amount to your income before tax is calculated. It is a tool for collection rather than protection.

The legal definition is found in reg 7(2). A K code means “a code which gives rise to additional pay or total additional pay to date.” It is the mechanism HMRC uses to collect tax on income that cannot be taxed directly, or to recover unpaid tax from previous periods.

The concept is further defined in reg 2(1). “Additional pay” is an amount “to be added to the relevant payments made to an employee in order to determine the taxable payments”.

On payday, the employer takes your actual gross wage. Instead of subtracting free pay, the payroll software adds the additional pay stipulated by your K code. The tax rates are then applied to this larger combined figure. You are taxed on more than you earned in that specific pay packet.

It is not a negative allowance

Many people think of a K code as a negative allowance. This is the wrong mental model. It is not an allowance that has dropped below zero. It is a precise statutory mechanism designed to convert external tax liabilities into a notional extra salary. It pulls outside debt into the PAYE system so it can be settled gradually.

What causes one

A K code is typically caused by items HMRC must have regard to under reg 14(1). Common examples include receiving the State Pension, having company benefits such as a car, or owing unpaid tax from earlier years. When the tax due on these items exceeds your available personal allowance, HMRC issues a K code to collect the balance.

The cap on the deduction

Because a K code taxes you on more than you earn, there is a risk the deduction could consume your entire wage. To prevent this, the legislation provides a hard cap. Under reg 2(1), the “overriding limit” is “the limit on the amount of tax to be deducted from a relevant payment and is an amount equal to 50% of the amount of the relevant payment”.

The employer calculates the full tax due, then applies the overriding limit under reg 23(5) for the cumulative basis or reg 28(5) for the non-cumulative basis. The employer must not deduct an amount of tax that exceeds the overriding limit on any single payday.

Crucially, the overriding limit protects your take-home pay, but it does not cancel the tax debt. Under reg 23(2)(b), the payroll software carries the undeducted tax forward as “UT” into the next payment. The cap defers the tax. It remains a debt within the payroll system. On the subsequent payday, the employer tries to collect the current period’s tax plus the rolled-over amount, subject again to the overriding limit.

When the deferred tax is rolled over, the system does not forget it. The unpaid amount accumulates. If the debt is never fully cleared by the end of the final pay period, it transitions into tax remaining unpaid from earlier years, which HMRC must then factor into the subsequent instruction.

Why the payslip can be right and wrong at once

It is important to remember that the payroll software operates automatically based on these instructions. The software does not know your personal circumstances; it only knows the data HMRC has transmitted. If the data transmitted is outdated, the deduction will be mathematically accurate according to the instruction, but factually wrong for your life. This is why maintaining accurate records with the authorities is the only way to ensure the system operates as intended.

The only place a person’s actual code can be viewed is HMRC’s authenticated Personal Tax Account. This site cannot know it, and does not try to. You must check your account directly to understand which specific reg 14(1) factors caused the additional pay.

What the number after the K means

A K code is written as the letter followed by digits, and the digits are not arbitrary. They carry the yearly additional pay the same way a suffix code’s digits carry the allowance: the amount with its final digit removed. Multiplying them by 10 gives the additional pay for the year — the amount added to your pay before the tax is worked out, rather than taken off it.

That is why two K codes with different numbers are not two different rules. They are the same rule collecting different amounts, and the number is the part that moves when the reg 14(1) factors behind it move. The K code page decodes one worked example end to end, including what the cap does on a single payslip, and if your tax code is wrong is the route to take if the factors behind your number are out of date.

Common questions