A PAYE K code reduces your personal allowance to zero and adds a notional amount of income on to your salary to be taxed. The imposition of a K code will result in a significant amount of tax being deducted from your earnings.
HMRC will impose a K code to collect existing tax debts, tax underpayments that it calculates will arise, and tax penalties imposed for late returns or late payments.
If you run your own company, you may have taken a significant dividend in 2021/22. As we knew the tax on dividends was going to increase on 6 April 2022.
HMRC may have assumed that the same pattern of large dividends would continue into 2022/23 and coded this high level of untaxed income into your tax code. This could result in a K code for 2022/23 or 2023/24.
If you have taken a more modest level of dividends in this tax year, your PAYE code won’t reflect your current income.
To remove the K code, you need to inform HMRC of your current level of expected dividends. You can do this through your online personal tax account under the PAYE heading, or by calling HMRC. We recommend you access your online personal tax account at:
www.gov.uk/personal-tax-account, where you can find a lot of useful information about your tax payments and liabilities.
Unfortunately, HMRC has not given tax agents access to personal tax accounts. So we can’t make the online adjustment to your tax code, but we can show you what to do.
Where a K code has been imposed to collect a tax debt you had no knowledge of. Because, you haven’t received letters about it, we can challenge the amount of tax due.