The‘ K’ code system provides a mechanism for income tax on benefits to be collected through the PAYE system rather than having to be assessed on the employee at the end of the tax year where the total benefits exceed the employee’s personal allowances for the year. The ‘ K’ code instructs the employer to increase taxable pay by an amount (subject to a limit of 50% of pay) to reflect the excess of benefits over personal allowances, tax then being deducted from the resulting total.

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