PAYE11095 - Coding: codes: how they are used and calculated: K codes
The primary intention of K codes is to
However, the system will allocate a K code in all cases where deductions exceed allowances.
K code example
- 6475 - 10000 = -3525
- Drop the last digit and the minus sign = 352
- Reduce the last digit by 1 = 351
- Add a K to the front of the code = K351
Where a K code has been generated you should check that the intended code will not trigger the 50 per cent overriding limit. The system will calculate that the tax due for the individual is equal or more than 50 per cent of their total income and display a message. Take the action in PAYE11096 in these cases.
The tax deducted on any one day cannot exceed 50 per cent of the gross pay for that period. 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 asking for a voluntary payment in underpayment cases or putting the case into SA. In these cases you will need to remove any non-PAYE income or underpayments included in the code calculation. On the income, allowances, benefits and deductions area make the appropriate entry in the Non Coded Income field (PAYE130035).
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 PAYE11096 can be used to determine what deductions can be included in the code.