Reader's Question:
Semi retired, my OAP pension is £840 per month with a private one at £66 per month. I work as a chauffeur and am taxed at 50%, my tax code is K650, why?
My response:
A K tax code is given to someone where they effectively owe excess tax.
Usually most people are entitled to the full income tax-free personal
allowance of £6,475. This is then signified by the tax code 647L. For
more details on how tax codes work and the different ones see my
article Money tip #4 – Check your tax code.
But if you have employee benefits or any unpaid tax then your personal
allowance will be reduced below the £6,475 to take account of them
(these could relate to the previous tax year). The result is that less
of your earnings are paid income-tax free.
However, if the level of unpaid tax or taxable employee benefits is in
excess of your personal allowance you will get a K tax code. Which is
effectively a negative personal allowance.
To quote HMRC ‘’When a K code is operated, your tax deduction for each
pay period cannot be more than half of your gross pay or pension.
(Hence the 50% figure you state). Your employer or pension provider
restricts the amount of tax deducted using a K code to make sure that
you retain a certain amount of take home pay or pension. If more tax
is due it will be collected at a later date’’.
So for you, a code of K650 means that:
- your untaxed income was approximately £6,500 greater than your taxable income
- as a result, approximately £6,500 must be added to your total taxable income to ensure the right amount of tax is collected
The actual calculation is a bit more complicated than this but you
catch my drift. So if you don’t believe that you have unpaid tax or received significant taxable employee benefits I suggest that you talk to your employer's payroll department ASAP.
