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UK tax code K - can someone tell me what this explanation means please?


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My UK tax code this year is K23.  I have looked at the explanation on the HMRC web site, but must admit to being baffled by the explanation as follows:

"This type of code tells

your employer how much extra must be applied to your earnings before

calculating income tax.  If you have a K code, this is probably because the taxable value of the

benefits you received in the previous tax year is more than the personal

allowance for the current year. You owe more tax on your benefits than is

available from your personal allowance. Therefore, the K code is effectively a

negative tax code."

Can any kind soul who understands this put it into plain English for me ? (I would have thought a  negative tax code means I don't pay tax, but obviously not!)

I think it means I pay more tax this year, but I have no idea how it has been worked out (and I cannot at the mo find my coding notice).  I claimed my pensions late last year, before which I had very little income, so I presume this is putting something right, but I'm blowed if I know what!

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A normal tax  code represents the amount of money you earn before tax is applied.   Thus if a normal (positive) tax code is say 252   then you get 2520 tax free (your tax code with a nought added - that's from memory but I think it's one nought!) before the normal bands are applied.  With a negative tax code they add an amount before calculating the bands.  Therefore your tax  will begin to be calculated at the amount you earn plus £230 (a negative tax code).

I'll make up some numbers.

You earn 10k a year and you tax code is 250.  Your tax is then calculated based upon a taxabe income of 7,500 (10,000 minus £2500).

You earn 10k  a year and your tax code is K250.  Your tax is calculated on the basis of an income of £12500 (10,000 plus £2,500 .)

A cleverer person than I will no doubt explain it better!

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The UK state pension is normally paid in full (ie no tax is deducted before it is paid to you). If your personal tax allowance is greater than your gross annual pension, the surplus allowance is set off against your other income (eg  an occupational pension). However if your personal tax allowance is less than your state pension a negative tax code (a K code) is used to collect the extra tax, due on your state pension, from your occupation pension.

I think this problem can sometimes occur when you are drawing a full state pension but are only entitled to a personal allowance which is lower than the state pension, due to rules about your total income exceeding a certain amount (see note 2 on the HM Revenue table at http://www.hmrc.gov.uk/rates/it.htm . Or you may have underpaid tax in an earlier year.

Brian (again)

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Thanks both - don't they make it complicated!

Well, as far as pension goes, I do get a full state pension and other occ pensions, and being a woman of 60 I fall into the trap of still receiving the lower personal allowance even though I am retired, so I suspect that is probably the reason.  Last year was weird as until I claimed my state pension and remaining  occ pensions I paid no tax at all as the small personal pension I got was below the personal allowance for the year.  No doubt that has knocked it all out of kilter. 

As to really not being in the UK tax system at all, that is another matter, but will have to wait until this year's French tax forms are done, then I will try and get myself out of the UK system (as much as I can).

However, I think what you are both saying that to make up the tax I should be paying, they are making me pay more, which is a pain ....  but sounds as though I don't need to worry too much as to it being something weird.

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