Tax code K

[Deleted User]

Cliddy09 said:

I still think I'm not getting my point across. Firstly the figures I've provided are the only ones involved and no outstanding balance to pay off.The figures are all rounded off just for convenience, as the few rounding pounds are insignificant in the circumstances.
What I don't understand is the actual definition of a k code in that it's a negative. What does that mean in tax code terms.
My other point is that it has nothing to do with pensions specifically.
A vaste number of tax payers are earning more than the personal allowance. Some only just exceeding it and many more earning significantly more.
In which case why aren't all those people also on a K code. Indeed probably many replying to me here fall into that category.

I do realise I'm missing something here, but I need it explained in words of one syllable 😃

OK - in the example that I quoted earlier. You have £3000 of property income and £8000 of state pension - £11000 of untaxed income. The personal allowance is 12570 which means that you have 1570 allowances remaining to set against your occupational pension. That would equate to a code of 157L. 

Let’s say that your property income is £6000. With a state pension of £8000 your untaxed income would be £14000, already 1430 over the personal allowance. Not only do you have no allowances left to set against your occupational pension but you have already received 1430 too much - negative by 1430. 

This will covert to a code of K143, You will pay tax of £886 on an occupational pension of £3000. This is 20% of £3000 plus 20% of £1430 excess allowances received. 

However, your untaxed income is only £11000 and there must be another reason for the negative allowances such as an underpayment being collected. The tax code breakdown will detail that.

Jeremy535897

Here is when a K code applies. Mr X has state pension of £10,000 and rental income of £5,570 every year. He also has a personal pension of £4,000 a year. He will pay tax of £19,570 - £12,570 personal allowance = £7,000 x 20% = £1,400. Without using self assessment or direct assessment, HMRC can only collect the tax of £1,400 from the personal pension of £4,000. The way they do this is to use a K code. In this case the K code is K300, because HMRC are collecting 20% tax on the excess (£3,000) of the rental and state pension over the personal allowance (£15,570 - £12,570), as well as the 20% tax on the pension itself. K codes can also be used where there is an underpayment brought forward.

In your case, with a personal pension of £3,000 and untaxed other income of £11,000, I would have expected your code to be 126L, calculated as one tenth of £12,570 personal allowance less untaxed income £11,000, which is £1,257/10, rounded up. (All codes, K, L or otherwise, are a tenth of the underlying income figures.) That is why people have been asking if you have an underpayment brought forward, or another source of untaxed income.

Dazed_and_C0nfused

Probably unlikely but maybe the op has rounded some figures and only has a Personal Allowance of £11,310 from applying for Marriage Allowance?

Cliddy09

I've seen the light!!! It's probably going to sound even more confusing if I try and explain my "logic".

I was confusing a tax code set up for me that has probably covered my total income for the year and is the only method that HMRC can use to recover non taxed income and basically I'm not challenging the actual figures.

This is in contrast to the "everybody else" I keep quoting who will generally have a starting point code of much nearer the full allowance, that will then be used to tax their forthcoming income for the year.

I was making a big mistake of confusing a pensionable age situation with a working age scenario.
Don't worry I think I'm clear now.🤔 

[Deleted User]

Dazed_and_C0nfused said:

Probably unlikely but maybe the op has rounded some figures and only has a Personal Allowance of £11,310 from applying for Marriage Allowance?

Always thinking outside the box!

Cliddy09

Jeremy535897 said:

Here is when a K code applies. Mr X has state pension of £10,000 and rental income of £5,570 every year. He also has a personal pension of £4,000 a year. He will pay tax of £19,570 - £12,570 personal allowance = £7,000 x 20% = £1,400. Without using self assessment or direct assessment, HMRC can only collect the tax of £1,400 from the personal pension of £4,000. The way they do this is to use a K code. In this case the K code is K300, because HMRC are collecting 20% tax on the excess (£3,000) of the rental and state pension over the personal allowance (£15,570 - £12,570), as well as the 20% tax on the pension itself. K codes can also be used where there is an underpayment brought forward.

In your case, with a personal pension of £3,000 and untaxed other income of £11,000, I would have expected your code to be 126L, calculated as one tenth of £12,570 personal allowance less untaxed income £11,000, which is £1,257/10, rounded up. (All codes, K, L or otherwise, are a tenth of the underlying income figures.) That is why people have been asking if you have an underpayment brought forward, or another source of untaxed income.

Please see below, many thanks

Cliddy09

Dazed_and_C0nfused said:

Probably unlikely but maybe the op has rounded some figures and only has a Personal Allowance of £11,310 from applying for Marriage Allowance?

Please see below, thanks