PAYE14051 - coding: coding functions: function CD: K codes (Action Guide)


When considering whether non-PAYE income can be included in a K code, follow steps 1 - 10 below. The guide is presented as follows

Initial actionSteps 1 - 3
50 per cent K code rule reached or exceededSteps 4 - 5
50 per cent K code rule not reachedSteps 6 - 9
Final actionStep 10


For details of how to access any of the COP functions use the [Index of Functions] button on the left of the screen.

Initial action

  1. Use COP Function CD (CY or CY+1 as appropriate) to enter total allowances and reliefs due. If this is the first time that non-PAYE income has been included in the code, unless the taxpayer has agreed that the CY code can be amended, only amend the CY+1 code

  2. Include in the code any deductions relevant to PAYE income, including

  • Benefits
  • National Insurance benefits (NIB)
  • Excessive Starting Rate (ELR)
  • Basic Rate Restriction (BRR)
  1. Consider whether or not the 50 per cent K code limit has been reached or exceeded

50 per cent K code rule reached or exceeded

If the 50 per cent K code rule has been reached or exceeded


  1. Do not include any non-PAYE income in the code

  2. If there is an underpayment for earlier years, consider collection by another method

50 per cent K code rule not reached

If the 50 per cent K code rule has not been reached


  1. Include any underpayments for earlier years

  2. If the 50 per cent K code rule has now been reached or exceeded

  • Do not include any non-PAYE income in the code
  • Consider whether all or part of the underpayment needs to be collected by another method
  1. If the 50 per cent K code rule has still not been reached or exceeded

  • Include non-PAYE income, up to a maximum of £10,000 in total, as deductions in the code

Note: This can be any non-PAYE income, such as INT, IFP and HRA. . It is not usual to include income returned on the self employment pages of the SA return in the code

There is

  • No separate limit to the amount of each deduction
  • No preferential order of deduction
  • No limit to the number of deductions that can be included
  • If there are sufficient allowances and reliefs to support the inclusion of more than £10,000 in the code, you may include increased amounts, with the taxpayer’s agreement, up to the maximum of the 50 per cent K code limit
  1. If the 50 per cent K code rule has now been reached or exceeded

  • Reduce the amount of the non-PAYE income included as deductions in the code to meet the 50 per cent K code limit. Any additional tax may have to be paid through SA

Final action

  1. Before finalising the code or codes, satisfy yourself

  • That the 50 per cent limit has not been exceeded
  • Non-PAYE deductions do not exceed £10,000

Or

  • If you have been able to include a greater deduction, the taxpayer has been advised and has agreed that the increased amounts can be included
  • If this is the first time that non-PAYE income has been included in the code, the taxpayer has agreed that the CY code can be amended. If not, only amend the CY+1 code

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