HMRC is issuing warnings to workers who have a K tax code on their payslip, as this code results in more tax being deducted through the PAYE system. The K code is used when an individual's tax-free Personal Allowance is reduced to zero or becomes negative, often to collect unpaid taxes from previous years or to recover overpaid benefits.
How K Tax Codes Work
Normally, a standard tax code like 1257L allows a tax-free Personal Allowance of £12,570. However, if you owe tax from a previous year or have taxable benefits not taxed elsewhere, HMRC reduces your Personal Allowance. If the reduction uses up your entire allowance, you are given a K code, which effectively creates a negative Personal Allowance.
For example, if HMRC determines you owe tax on £15,000 of untaxed income, you might receive a K code like K243. This instructs your employer to add £2,430 to your taxable income (beyond your £12,570 allowance), increasing the tax deducted from your wages.
Protection Rules
While K codes can significantly reduce take-home pay, there are safeguards. The amount of tax deducted due to a K code cannot exceed 50% of your pre-tax pay. This rule prevents excessive deductions, but it is still important to ensure your tax code is correct.
What to Do If You Have a K Code
The Low Income Tax Reform Group warns that many people are being issued K codes to collect large historic debts over short periods. If your tax code has changed to a K code or your take-home pay has dropped significantly, HMRC may be recovering debts such as late filing penalties.
To check your tax code, look at your most recent payslip. A K code will have the letter before the number (e.g., K784), unlike standard codes where letters follow numbers (e.g., 1257L).
If you believe your tax code is incorrect, contact HMRC immediately to have it corrected. Tax rebate companies like RIFT offer to check and correct tax codes as part of their service. Remember, it is your responsibility to ensure your tax code is accurate to avoid overpaying or underpaying tax.
