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, tax arrears) exceed your £12,570 Personal Allowance by £5,000, so HMRC needs to collect tax on that excess through your payslip rather than via Self Assessment. The same logic applies to K850 (£8,500 added), K1000 (£10,000 added) and any other K-prefix code.

Why has HMRC put me on a K code?

Almost always one of four reasons: (1) you receive substantial untaxed company benefits such as an expensive company car, private medical insurance, accommodation or interest-free loans above £10,000; (2) your State Pension is above £12,570 and you also have employment or pension income; (3) HMRC is recovering unpaid tax from a previous year via your current code rather than chasing it through Self Assessment; (4) a combination of small benefits that together exceed your £12,570 PA.

How much extra tax does a K code take?

It depends on the number after K and your marginal rate. K500 (£5,000 addition) at the 20% basic rate adds £1,000 of Income Tax per year (£83/month). At 40% higher rate the same K500 adds £2,000. K1000 (£10,000 addition) at 20% adds £2,000; at 40% adds £4,000. The exact figure also depends on whether the addition pushes you into a higher band - so a K500 on top of a £45,000 salary partly crosses into 40% territory and the marginal hit is mixed.

What is the 50% rule on K codes?

HMRC caps deductions under a K code at 50% of the cash you actually receive in any single pay cheque. If the K calculation would theoretically take more than half your salary in one period, the overflow is carried forward to the next pay period (and eventually rolls into Self Assessment if it cannot be cleared by year-end). This stops the K mechanism from leaving you with no take-home in any one month, even for very large negative allowances.

Can I refuse a K code or pay the tax separately?

Not really - HMRC assigns tax codes based on the information they hold about your benefits and arrears, and you cannot opt out of PAYE for items they are legitimately collecting through it. What you can do is challenge the underlying figures: if your company car has changed, or you no longer receive a benefit, or you have already paid the arrears, contact HMRC on 0300 200 3300 with evidence and ask them to recalculate. The K number will usually drop or revert to L within one or two pay cycles.

Does the K code work in Scotland?

Yes - Scottish K-code payslips show SK followed by the number (e.g. SK500). The negative-allowance mechanism is identical but the bands above are Scottish: 19% starter, 20% basic, 21% intermediate, 42% higher, 45% advanced, 48% top. A Scottish K-code holder paying tax at the 42% higher rate sees a steeper marginal collection than a rest-of-UK K-code holder paying at 40%.

K Tax Code Explained (2026/27)

A K-prefix tax code (K500, K850, K1000, K475 and so on) is the inverse of the normal pattern. Where 1257L gives you £12,570 of tax-free Personal Allowance, K500 adds £5,000 of notional taxable income to your pay before working out the Income Tax. HMRC uses it when your untaxed deductions - company benefits, State Pension, tax arrears - exceed your full PA, so a single negative-allowance code can recover the difference through PAYE.

How to read a K-prefix tax code

K = your deductions exceed your Personal Allowance; the code is "negative".
The number × 10 = the amount of notional taxable income added to your salary each year.
K500 = £5,000 added; K850 = £8,500; K1000 = £10,000; K475 = £4,750.
SK500 = Scottish K500 (Scottish bands above).
CK500 = Welsh K500 (currently same rates as rest-of-UK).

The PAYE calculation runs your actual gross pay plus the K addition through the standard tax bands, with the Personal Allowance set to zero. So a £45,000 salary on K500 is taxed as if it were £50,000 of taxable income with no PA - which crosses the 20%/40% threshold and triggers some higher-rate tax that a normal 1257L code on the same salary would not.

Worked example: £45,000 salary on K500

Typical scenario: salary £45,000 plus a £15,000-list-price company car (which carries an annual taxable benefit of roughly £4,000-£6,000 depending on CO₂). HMRC adds this to your code as a negative allowance. Reset taxable base = £45,000 + £5,000 = £50,000 run through the standard bands at zero PA.

Line	K500 annual	1257L annual
Gross salary (cash)	£45,000	£45,000
K500 notional addition	+£5,000	£0
Personal Allowance applied	£0	£12,570
Taxable base for Income Tax	£50,000	£32,430
Tax at 20% basic rate	£7,540	£6,486
Tax at 40% higher rate	£4,920	£0
Total Income Tax	£12,460	£6,486
Class 1 NI (unchanged)	£2,594	£2,594
Cash take-home	£29,946	£35,920

The K500 code collects an extra £5,974 of Income Tax this year compared with 1257L - the cost of taxing the £5,000 of company-car benefit through PAYE rather than via a Self Assessment bill the following January. NI is unchanged because Class 1 employee NI is calculated on cash earnings only, not on Benefits in Kind.

The 50% rule means HMRC cannot deduct more than £22,500 from any single annual payslip at this gross. Well within the £12,460 of K500-driven tax, so the cap does not bite here - but it would on, say, a £20,000 salary with a K1500 code, where the natural deduction would otherwise exceed half the take-home.

Common K-code values and their impact

All figures for a £45,000 cash salary, England/NI, no pension, no student loan:

Code	Addition	Income Tax	Take-home
K200	+£2,000	£11,260	£31,146
K500	+£5,000	£12,460	£29,946
K850	+£8,500	£13,860	£28,546
K1000	+£10,000	£14,460	£27,946

How to check if your K code is right

HMRC issues a tax code notice (form P2) every time the code changes. It lists every deduction that contributes to the K number - look for the line items and verify each one against your reality:

Company car - the figure should match the most recent P11D from your employer (CO₂-based percentage × list price).
Private medical / fuel benefit / accommodation - check your P11D for the cash-equivalent values.
State Pension - excess over £12,570 reduces your PA on the employment code.
Tax owed from earlier years - listed as "underpayment restriction" on the notice; should match the prior-year P800.

Cross-check via your Personal Tax Account or the official Check your Income Tax service - both show the live code and breakdown.

How to fix a wrong K code

Update benefits: if you have given back the company car or stopped a benefit, tell HMRC immediately via the Personal Tax Account or GOV.UK app.
Online: gov.uk/tax-codes/if-your-tax-code-is-wrong walks through each common cause and links to the right correction form.
Phone HMRC PAYE on 0300 200 3300 with the latest P2 tax code notice and any P11D in front of you.
For collected-via-PAYE tax debt that you have separately paid off, ask HMRC to confirm receipt - the K number should drop within one pay cycle.

Related tax codes

Frequently asked questions about K codes

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, tax arrears) exceed your £12,570 Personal Allowance by £5,000, so HMRC needs to collect tax on that excess through your payslip rather than via Self Assessment. The same logic applies to K850 (£8,500 added), K1000 (£10,000 added) and any other K-prefix code.
Why has HMRC put me on a K code?: Almost always one of four reasons: (1) you receive substantial untaxed company benefits such as an expensive company car, private medical insurance, accommodation or interest-free loans above £10,000; (2) your State Pension is above £12,570 and you also have employment or pension income; (3) HMRC is recovering unpaid tax from a previous year via your current code rather than chasing it through Self Assessment; (4) a combination of small benefits that together exceed your £12,570 PA.
How much extra tax does a K code take?: It depends on the number after K and your marginal rate. K500 (£5,000 addition) at the 20% basic rate adds £1,000 of Income Tax per year (£83/month). At 40% higher rate the same K500 adds £2,000. K1000 (£10,000 addition) at 20% adds £2,000; at 40% adds £4,000. The exact figure also depends on whether the addition pushes you into a higher band - so a K500 on top of a £45,000 salary partly crosses into 40% territory and the marginal hit is mixed.
What is the 50% rule on K codes?: HMRC caps deductions under a K code at 50% of the cash you actually receive in any single pay cheque. If the K calculation would theoretically take more than half your salary in one period, the overflow is carried forward to the next pay period (and eventually rolls into Self Assessment if it cannot be cleared by year-end). This stops the K mechanism from leaving you with no take-home in any one month, even for very large negative allowances.
Can I refuse a K code or pay the tax separately?: Not really - HMRC assigns tax codes based on the information they hold about your benefits and arrears, and you cannot opt out of PAYE for items they are legitimately collecting through it. What you can do is challenge the underlying figures: if your company car has changed, or you no longer receive a benefit, or you have already paid the arrears, contact HMRC on 0300 200 3300 with evidence and ask them to recalculate. The K number will usually drop or revert to L within one or two pay cycles.
Does the K code work in Scotland?: Yes - Scottish K-code payslips show SK followed by the number (e.g. SK500). The negative-allowance mechanism is identical but the bands above are Scottish: 19% starter, 20% basic, 21% intermediate, 42% higher, 45% advanced, 48% top. A Scottish K-code holder paying tax at the 42% higher rate sees a steeper marginal collection than a rest-of-UK K-code holder paying at 40%.