Switching from L to K tax code

[IntegraTypeR]

Hi all

I'm trying to understand what happens when I switch from an L to a K tax code (which has just happened to me).

My understanding is that the L code denotes how much tax free income I can earn during the tax year (E.g. 600L means I pay 0% on earnings up to £6000), and the K code indicates additional income for which I need to pay tax (E.g. K150 means I need to pay income tax on earnings of an additional £1500). The thing I'm not clear on is, when I switch from L to K, does that immediately mean that my tax allowance for the year becomes £0? So, for example, if I switch from 600L to 150K, does this mean that not only do I no longer get £6000 tax free, but I now also need to pay tax on an additional £1500, or do I retain my £6000 allowance, but just pay tax on the additional £1500?

Thanks for any help you can provide!

Ian

[jock mcsporran]

Pretty sure it means that you now owe them money (probably from an underpayment of tax from last year). I was on a K code by mistake for the last 8 months and tax take was ridiculous until it was sorted out.

Call them up and ask for an explanation.

[Eric Mc]

Are you in receipt of a substantial taxable Benefit in Kind - such as a Company Car?

[rsv gone!]

Last time I had a K code it was down to a company car (and the fact that IR seemed to mess up my tax every single year, despite me being on PAYE and submitting P11D etc).

In simplistic terms, standard allowance is something like £8000 now. If you have a K150 tax code then on your first £8000, you will pay tax on £9500.

[Eric Mc]

The normal personal tax allowance for 2013/14 (i.e. the current tax year) is £9,400 - which translates in PAYE Coding lingo into 944L.

Next year, the personal tax allowance will increase to £10,000 - which should equate to a coding of 1000L.

If in 2013/14 you have a K Code of (say) 500K, this means that you are probably being taxed on a benefit in kind which is worth £9,940 per annum.

Or there are other large factors at play which seriously reduce your personal tax allowance, such as having to pay arrears of tax for earlier years.

[sumo69]

IntegraTypeR said:

Hi all

I'm trying to understand what happens when I switch from an L to a K tax code (which has just happened to me).

My understanding is that the L code denotes how much tax free income I can earn during the tax year (E.g. 600L means I pay 0% on earnings up to £6000), and the K code indicates additional income for which I need to pay tax (E.g. K150 means I need to pay income tax on earnings of an additional £1500). The thing I'm not clear on is, when I switch from L to K, does that immediately mean that my tax allowance for the year becomes £0? So, for example, if I switch from 600L to 150K, does this mean that not only do I no longer get £6000 tax free, but I now also need to pay tax on an additional £1500, or do I retain my £6000 allowance, but just pay tax on the additional £1500?

Thanks for any help you can provide!

Ian

The effect is that you will pay tax on a further £7500 based on your figures - you lose the £6k allowance (the current 13/14 allowance is £9440 so assume you have other deductions?)and are taxed on a supplement of £1500. If you are a basic rate taxpayer this will equate to a further £125 per month or £250 if you are a higher rate taxpayer.

David

[IntegraTypeR]

sumo69 said:

The effect is that you will pay tax on a further £7500 based on your figures - you lose the £6k allowance (the current 13/14 allowance is £9440 so assume you have other deductions?)and are taxed on a supplement of £1500. If you are a basic rate taxpayer this will equate to a further £125 per month or £250 if you are a higher rate taxpayer.

David

Thanks David - this is the scenario I was dreading (but thought most likely!). The codes I provided were for example purposes only - the real codes mean that the impact is significantly worse. Ahh well, happy new year

Thanks to everyone else that also replied.

Ian

[QBee]

IntegraTypeR said:

Hi all

I'm trying to understand what happens when I switch from an L to a K tax code (which has just happened to me).

My understanding is that the L code denotes how much tax free income I can earn during the tax year (E.g. 600L means I pay 0% on earnings up to £6000), and the K code indicates additional income for which I need to pay tax (E.g. K150 means I need to pay income tax on earnings of an additional £1500). The thing I'm not clear on is, when I switch from L to K, does that immediately mean that my tax allowance for the year becomes £0? So, for example, if I switch from 600L to 150K, does this mean that not only do I no longer get £6000 tax free, but I now also need to pay tax on an additional £1500, or do I retain my £6000 allowance, but just pay tax on the additional £1500?

Thanks for any help you can provide!

Ian

Spot on.
L is a positive 0% income allowance equal to the code number x £10.
K is a negative allowance of the code x £10,
So the extra tax you pay is the L code plus the K code both times £10 and times your highest tax rate.
And as you surmised, you get no personal allowance.

So
If your salary was £40,000 a year and your code 600L, you pay tax on £34000.
If your salary is now £40,000 a year and your code K150, you pay tax on £41500.
This is because your benefit in kind is valued at £7500 for tax purposes.

[sumo69]

QBee said:

Spot on.
L is a positive 0% income allowance equal to the code number x £10.
K is a negative allowance of the code x £10,
So the extra tax you pay is the L code plus the K code both times £10 and times your highest tax rate.
And as you surmised, you get no personal allowance.

So
If your salary was £40,000 a year and your code 600L, you pay tax on £34000.
If your salary is now £40,000 a year and your code K150, you pay tax on £41500.
This is because your benefit in kind is valued at £7500 for tax purposes.

I told the OP this 2 posts above - and he acknowledges it above!!

David

[Eric Mc]

Reinforcement is a good form of education.

Ask a teacher.

[sumo69]

Eric Mc said:

Reinforcement is a good form of education.

Ask a teacher.

Pardon? What did you say?

LOL!

David

[Eric Mc]

Pay attention at the back.

Some pupils are just so difficult.