HMRC cuts tax-free Personal Allowance for people with letter K on payslip

The end of the tax year is approaching with a self-assessment deadline this Friday. But for many HMRC is still catching up with what you owe and what you're owed from your end-of-year calculations from last tax year, based on your earnings, savings, pension and other benefits. Taxpayers are being told that they should check their payslips carefully because HMRC could change your tax code to collect any unpaid tax you owe, especially after banks report savings interest and online marketplaces report earnings, directly to HMRC.

Your tax code, usually found on the top of your payslip, determines how much tax you pay and how much tax-free personal allowance you're given. A standard code is 1257L, which means you'll get £12,570 tax-free personal allowance before you begin paying tax on every £1 you earn above £12,570. The L means you're entitled to the standard tax-free personal allowance.

But there are other codes, such as BR, which is an emergency tax code - usually issued when you start a new job or second job and the tax owed hasn't been fully worked out yet - and N, which means you've transferred some tax allowance to your spouse.

Tax experts at the Low Incomes Tax Reform Group (LITRG) say the tax code K could mean you owe tax money to HMRC, which has led the taxman to cut your personal allowance down to pay for it.

They said: "K codes are a type of tax code that will result in more tax being collected out of your wages, via the PAYE system.

"If your tax code has recently changed to a K code - or you have noticed any other change to your code that has resulted in a significant decrease to your take home pay - it may be that HMRC are trying to collect debts, like tax return late filing penalties, from you via your tax code.

"You should be able to tell if you have a K code by looking on your most recent payslip. In a K code, the descriptive letter is placed in front of the tax code number, for example, K784, rather than after it, such as in the standard 1257L code."

They said that if you don't know why you've suddenly been hit with a letter K on your payslip, you should contact HMRC as soon as possible.

HMRC says about the K code: "If your tax code has a 'K' at the beginning

"Tax codes with 'K' at the beginning mean you have income that is not being taxed another way and it's worth more than your tax-free allowance. For most people, this happens when you're: paying tax you owe from a previous year through your wages or pension; getting benefits you need to pay tax on - these can be state benefits or company benefits."