How are K Tax Codes Worked Out?

Dazed_and_C0nfused

[Deleted User] said:

badmemory said:

I haven't noticed it mentioned but the K code can only take 50% of the income it is set against.  I believe it is often caused by a larger than normal state pension & a larger than normal untaxed at source income meaning any taxable at source income is not sufficient for 50% of it to pay all the tax due.

Mentioned by Dazed earlier. By far the most common ‘causes’ of K codes are large BIK and coded underpayments. 

And the 50% rule now applies to all codes, it's not specific to K codes.

Albeit they are the usual situation where 50% is relevant.

BikingBud

Thanks all

So if I understand correctly it's all a bit of a SWAG and it only actually be clear at end of year!  Although I would like to have bit more certainty about the figures.

Pay up to maximum into Company Pension via Sal Sac as this will always be the best way to save. 

If I have surplus cash after max Sal Sac consider paying into SIPP. I see the tax rebate but would passing on to kids now as regular payments be worthwhile?

Bookworm105

Dazed_and_C0nfused said:

Bookworm105 said:

in what context?
a K code simply means your tax free allowance has been reduced to zero and then increased by the amount of money that will be needed to be taxed at your marginal rate to ensure you pay the amount of tax it is estimated you owe
K1000 - instead of £1,000 tax free, your PAYE calculation will treat your taxable income figure as being 1,000 higher so you pay tax on that larger total 

if you salary sacrifice, then your tax code is irrelevant since the amount sacrificed never enters your PAYE calculation in the first place 

Wishful thinking!

K1000 means by month 12/week 52 an employee or pension payer will add 10000 onto any earnings 

must spend longer in bed on Sunday mornings, not posting on MSE 

BikingBud

So the new tax codes arrived and I now have a code K1620X against an income stream of less the £1300 

How does that work and so much for the 50% limit?

molerat

Whatever the code the amount of tax is limited to 50% of the gross so the maximum tax taken by PAYE will be less than £650.

Dazed_and_C0nfused

BikingBud said:

So the new tax codes arrived and I now have a code K1620X against an income stream of less the £1300 

How does that work and so much for the 50% limit?

Nothing will override the 50% limit, that is the maximum tax that can be deducted from each payment, irrespective of the tax code in use.

BikingBud

So HMRC have allocated the codes incorrectly and I will underpay.

Good to see the system works

eastcorkram

Dazed_and_C0nfused said:

BikingBud said:

So the new tax codes arrived and I now have a code K1620X against an income stream of less the £1300 

How does that work and so much for the 50% limit?

Nothing will override the 50% limit, that is the maximum tax that can be deducted from each payment, irrespective of the tax code in use.

If they can only take 50%, but to get what was due, it needs to be 70%, how do they get the extra 20%?

Dazed_and_C0nfused

eastcorkram said:

Dazed_and_C0nfused said:

BikingBud said:

So the new tax codes arrived and I now have a code K1620X against an income stream of less the £1300 

How does that work and so much for the 50% limit?

Nothing will override the 50% limit, that is the maximum tax that can be deducted from each payment, irrespective of the tax code in use.

If they can only take 50%, but to get what was due, it needs to be 70%, how do they get the extra 20%?

If you complete a Self Assessment return then it comes out in the wash via your return.

If you don't, and the situations is expected to continue, for example someone with a small company/personal pension and large State Pension, then HMRC will issue a Simple Assessment.

If it's short term then HMRC would issue a P800 calculation and collect anything owed via a future years tax code.

BikingBud

Dazed_and_C0nfused said:

eastcorkram said:

Dazed_and_C0nfused said:

BikingBud said:

So the new tax codes arrived and I now have a code K1620X against an income stream of less the £1300 

How does that work and so much for the 50% limit?

Nothing will override the 50% limit, that is the maximum tax that can be deducted from each payment, irrespective of the tax code in use.

If they can only take 50%, but to get what was due, it needs to be 70%, how do they get the extra 20%?

If you complete a Self Assessment return then it comes out in the wash via your return.

If you don't, and the situations is expected to continue, for example someone with a small company/personal pension and large State Pension, then HMRC will issue a Simple Assessment.

If it's short term then HMRC would issue a P800 calculation and collect anything owed via a future years tax code.

Leading to even bigger K code?

Or they could just do their job effectively and allocate meaningful and accurate codes against each of the income sources!