PAYE14050 - coding: coding functions: function CD: K codes

The primary intention of K codes is to

• Collect tax on benefits in kind
• Collect tax on state benefits

However, the computer will allocate a K code in all cases where deductions exceed allowances.

Where a K code has been generated you should check that the intended code will not trigger the 50% overriding limit. There is no benefit to the employee or HMRC issuing a code where it is known that insufficient tax will be deducted resulting in an underpayment at the end of the year. Depending on the deductions present you may need to consider an alternative way of collecting the tax due, such as spreading an underpayment over more than one year or putting the case into SA.

Whether any non-PAYE income can be included in a code depends on the individual's circumstances. It is not usual to include income returned on the self employment pages of the SA return in the code. The Action Guide at PAYE14051 can be used to determine what deductions can be included in the code.