What does the K500 tax code mean?

K500 means HMRC has added £5,000 of notional taxable income to your pay for PAYE purposes (the number after K, multiplied by 10). It does not mean you receive an extra £5,000 - it means your untaxed deductions (company benefits, State Pension above the allowance, or tax arrears) exceed your £12,570 Personal Allowance by £5,000, so HMRC collects tax on that excess through your payslip rather than via a Self Assessment bill. The same logic applies to K475 (£4,750 added), K850 (£8,500) and K1000 (£10,000).

How much extra tax does a K code take?

It depends on the number after K and your marginal rate. K500 (£5,000 added) costs an extra £1,000 a year at the 20% basic rate, or £2,000 at 40%. K1000 (£10,000 added) costs £2,000 at 20% or £4,000 at 40%. The exact figure is higher if the addition tips part of a basic-rate salary into the 40% band: a K500 on a £45,000 salary collects roughly £5,974 more than a 1257L code, because removing the £12,570 allowance and adding £5,000 pushes £12,300 of income into higher-rate territory.

Why is HMRC adding income I don't actually get?

They're not adding real income - they're adjusting the PAYE calculation so the tax on your untaxed benefits (e.g. a company car) or tax debts gets collected through your payslip. You still only receive your actual salary; the K code just alters the tax calculation.

Does the K prefix work in Scotland?

Yes, Scottish taxpayers with a K code typically see SK-prefix (e.g. SK475). The negative-allowance mechanism is identical; only the Scottish tax bands above apply for the rate calculation.

Can my K code change?

Yes - it updates when your benefits change (e.g. you give back the company car), when HMRC collects the prior-year arrears, or when you update your details through the Personal Tax Account.

HMRC caps K-code deductions at 50% of any single pay cheque. Anything over that is postponed to the next period or to self-assessment, so your take-home never drops below half of gross from this deduction alone.

Tax Code · 2026/27

K Tax Code: Negative Allowance UK 2026/27

A K-prefix tax code (e.g. K475) means your taxable deductions exceed your Personal Allowance. The number represents extra taxable income added to your pay, not a tax-free amount.

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What the K tax code means

A K-prefix code inverts the usual tax code logic. Where 1257L subtracts £12,570 from your pay before tax, K475 adds £4,750 to your pay as additional taxable income. HMRC uses it when your deductions — untaxed benefits, state pension exceeding PA, unpaid tax from prior years — are larger than the £12,570 PA, leaving a net negative allowance.

The code ensures tax is collected evenly through PAYE rather than hitting you with a single self-assessment bill. Spreading it across the year smooths cash-flow and avoids underpayment penalties.

The K number is the *negative* allowance divided by 10, so K475 = £4,750 added, K500 = £5,000, K850 = £8,500 and K1000 = £10,000 of notional extra taxable income added to your actual pay each year for the purpose of calculating Income Tax. Scottish taxpayers see an SK prefix (e.g. SK500) and Welsh taxpayers a CK prefix (e.g. CK500); the negative-allowance mechanism is identical, only the tax bands above differ.

PAYE runs your actual gross pay plus the K addition through the standard bands with the Personal Allowance set to zero. Because the £37,700 basic-rate limit still applies, a large K addition can push part of an otherwise basic-rate salary into the 40% band - so a K code often collects more than a simple "K number × 10 × your rate" back-of-envelope estimate.

When you'll see K

You receive substantial company benefits (expensive company car, private medical, rent-free housing) that HMRC collects tax on through PAYE rather than self-assessment.
You receive State Pension above the £12,570 PA and continue working — the excess creates negative allowance on your employment code.
HMRC is recovering unpaid tax from a previous year via your current code.
A large interest-free or low-interest employer loan - a beneficial loan above £10,000 creates a taxable benefit HMRC collects through your code.
Multiple state or employer benefits combining to exceed your £12,570 PA.

What to do if you have a K code

Check HMRC's tax code notice (form P2, sent by letter or shown in your Personal Tax Account) to see exactly which deductions make up the K value.
Cross-check each line against your latest P11D - company car (CO₂-based percentage × list price), private medical, fuel benefit, accommodation - plus any State Pension excess over £12,570 and any prior-year "underpayment restriction". Every entry should match your reality.
If any of the deductions look wrong — e.g. benefits you no longer receive, a company car you have given back, or tax arrears already paid — contact HMRC on 0300 200 3300 to update; the K number usually drops within one or two pay cycles.
HMRC caps deductions at 50% of each pay cheque. If your K code would theoretically take more than half your salary in a single period, the overflow is carried forward.

Worked example

K200 on a £40,000 salary adds £2,000 of notional income, so Income Tax is calculated on £40,000 + £2,000 = £42,000 with no Personal Allowance. Because that base crosses the £37,700 basic-rate limit, tax is £37,700 × 20% + £4,300 × 40% = £9,260. On the same £40,000 with a standard 1257L code the tax would be 20% × £27,430 = £5,486 - so the K200 code collects £3,774 extra to cover the benefits or debt. K500 is the classic company-car case: on a £45,000 salary K500 adds £5,000 for a £50,000 taxable base, giving £37,700 × 20% + £12,300 × 40% = £12,460 of Income Tax (versus £6,486 on 1257L). Class 1 National Insurance is unchanged either way, because employee NI is charged on cash earnings only, not on the notional K addition or on benefits in kind. The 50% overriding limit means HMRC can never take more than half your gross pay in any single pay period through the K adjustment; any overflow rolls into the next period.

Want to see the numbers for your own salary? Use the salary calculator and pick 2026/27 to see how K interacts with your full take-home.

Frequently asked questions about K

What does the K500 tax code mean?: K500 means HMRC has added £5,000 of notional taxable income to your pay for PAYE purposes (the number after K, multiplied by 10). It does not mean you receive an extra £5,000 - it means your untaxed deductions (company benefits, State Pension above the allowance, or tax arrears) exceed your £12,570 Personal Allowance by £5,000, so HMRC collects tax on that excess through your payslip rather than via a Self Assessment bill. The same logic applies to K475 (£4,750 added), K850 (£8,500) and K1000 (£10,000).
How much extra tax does a K code take?: It depends on the number after K and your marginal rate. K500 (£5,000 added) costs an extra £1,000 a year at the 20% basic rate, or £2,000 at 40%. K1000 (£10,000 added) costs £2,000 at 20% or £4,000 at 40%. The exact figure is higher if the addition tips part of a basic-rate salary into the 40% band: a K500 on a £45,000 salary collects roughly £5,974 more than a 1257L code, because removing the £12,570 allowance and adding £5,000 pushes £12,300 of income into higher-rate territory.
Why is HMRC adding income I don't actually get?: They're not adding real income - they're adjusting the PAYE calculation so the tax on your untaxed benefits (e.g. a company car) or tax debts gets collected through your payslip. You still only receive your actual salary; the K code just alters the tax calculation.
Does the K prefix work in Scotland?: Yes, Scottish taxpayers with a K code typically see SK-prefix (e.g. SK475). The negative-allowance mechanism is identical; only the Scottish tax bands above apply for the rate calculation.
Can my K code change?: Yes - it updates when your benefits change (e.g. you give back the company car), when HMRC collects the prior-year arrears, or when you update your details through the Personal Tax Account.
What's the 50% rule?: HMRC caps K-code deductions at 50% of any single pay cheque. Anything over that is postponed to the next period or to self-assessment, so your take-home never drops below half of gross from this deduction alone.

All UK tax codes →

Sources & further reading

All figures and definitions on this page reflect the 2026/27 UK tax year and are cross-checked against HMRC guidance.

HMRC — What your tax code means (official meanings for L, BR, D0, D1, K, 0T, NT, M, N, S, C, T)
HMRC — Income Tax rates and Personal Allowance (2026/27 bands and thresholds)
HMRC — Emergency tax codes (W1, M1 and X suffixes)
HMRC — Rates and thresholds for employers 2026 to 2027
HMRC — Your Personal Tax Account (check your current code and how it was calculated)
Our methodology & calculation sources →