K127 Tax Code Explained: Your Pay, Checks, and Refunds

A K127 tax code means HMRC believes you have about £1,270 of untaxed income or taxable benefits sitting above your Personal Allowance, and it is using your payslip to collect the tax on it. Rather than giving you a tax-free slice of pay each period, your employer adds £1,270 to your annual taxable earnings and works out tax on the higher figure. You never see that £1,270 in your bank account; it is a bookkeeping addition so HMRC can recover what you owe gradually through PAYE.¹

What the K and the 127 Mean

Most tax codes work by subtraction. A standard 1257L code tells your employer to knock £12,570 (the number multiplied by ten) off your annual pay before calculating tax. A K code does the opposite. When your untaxed income and benefits are worth more than your Personal Allowance, there is no allowance left to subtract, and HMRC needs to tax the excess. The K prefix tells your employer to add the coded amount instead.¹

The 127 follows the same multiply-by-ten rule. K127 means £1,270 gets added to your taxable pay across the year. If your Personal Allowance is the standard £12,570 and HMRC has recorded £13,840 of untaxed income and benefits against your record, the £1,270 difference is what shows up in the code.²

Why You Were Given a K127 Code

Three things push people into K code territory, sometimes on their own and sometimes stacked together.¹

Company benefits. A company car available for private use, private medical insurance, an interest-free loan, or similar employer-provided perks all count as taxable benefits. Each one has a cash-equivalent value that eats into your Personal Allowance. A company car alone can be enough: for 2026/27 the taxable percentage of the car’s list price runs as high as 37% for the most polluting vehicles.³

State Pension. The State Pension is paid gross, but it is still taxable. The full new State Pension for 2026/27 is around £12,548, which sits just under the £12,570 Personal Allowance on its own. Add even a small workplace benefit or a second pension and you tip over. HMRC then collects the pension tax through your employment income, often with a K code.⁴

Tax owed from an earlier year. If HMRC finds an underpayment from a previous tax year, it often collects the shortfall by adding it into your current code rather than sending a separate bill. This is called coding out. It is one of the more common reasons a code that used to look normal suddenly turns into a K, and it is worth checking that the debt figure HMRC is using is actually right.

What K127 Does to Your Take-Home Pay

Take someone earning £30,000. Under 1257L, taxable income is £17,430 and the annual tax bill is roughly £3,486 at the 20% basic rate. Under K127, taxable income becomes £31,270 (salary plus the £1,270 addition), and the annual tax bill rises to about £6,254. That is roughly £231 a month more than the standard code would produce.²

The added amount is taxed at whatever band your total income sits in. For 2025/26 and 2026/27 in England, Wales, and Northern Ireland, the thresholds are frozen:²

Basic rate of 20% on taxable income from £12,571 to £50,270
Higher rate of 40% from £50,271 to £125,140
Additional rate of 45% above £125,140

Scottish taxpayers pay Scottish rates on the same K127 mechanics; the code adds the same £1,270, but the tax collected reflects Scottish bands.⁵

There is one built-in protection. Your employer can never deduct more than 50% of your gross pay in tax under a K code. If the calculation would go higher, the deduction is capped and HMRC collects the rest another way.¹

How to Check Whether K127 Is Right

K codes are one of the areas where HMRC gets it wrong most often. The record might still show a company car you handed back, medical cover your employer cancelled, or a debt you have already paid off. Sign in to your Personal Tax Account on GOV.UK and open the tax code breakdown. HMRC lists every item that went into the calculation, line by line.⁶

Compare those lines against your own paperwork:

Your P60, which shows total pay and tax deducted for the previous tax year.
Your P11D, the form your employer files listing each taxable benefit and its value. Ask your employer for a copy of what they reported if you do not have it.⁷
Your State Pension statement, if pension income is part of the picture.

Look for benefits you have opted out of, cars you no longer have, insurance premiums that look too high, or a prior-year debt that was already cleared. Anything that does not match reality is grounds for asking HMRC to update the code.

Getting the Code Changed

The quickest route is the “Check your Income Tax” service on GOV.UK. Sign in, correct the item that is wrong, and submit the update. You can also call HMRC’s income tax helpline on 0300 200 3310.

HMRC aims to issue a revised code within 15 working days and will notify both you and your employer. If you are paid monthly, expect the change on your next payslip or the one after. Weekly-paid staff usually see it by the third payslip. Your employer has to wait for HMRC’s formal notification before changing anything.⁶

You will also receive a P2 coding notice showing the new code and how each figure was worked out. Hang on to it. It makes future checks much easier.

Claiming a Refund If You Overpaid

If K127 was wrong and you have been overpaying, you are entitled to that money back. Corrections made mid-year usually filter through as smaller deductions across your remaining payslips. If the tax year has already ended, HMRC either repays you directly or adjusts next year’s code to give the money back.

There is a four-year deadline. You have four years from the end of the tax year in which the overpayment happened to claim. An overpayment in 2021/22 (year ending 5 April 2022) must be claimed by 5 April 2026. After that, the year is closed and HMRC will not process a refund.

If the Tax Is Genuinely Owed

When K127 reflects real untaxed income, PAYE spreads the tax across the year and there is usually no late payment charge to worry about. Interest and penalties only bite when something goes wrong: the code was applied late, income was higher than estimated, or a return contains an error.

HMRC charges interest on underpaid tax at the Bank of England base rate plus 4%. As of January 2026 that is 7.75%, and it accrues daily until the tax is paid.⁸

Separate penalties can apply if there are inaccuracies in a tax return. There is no penalty where reasonable care was taken. A careless mistake can attract a penalty of up to 30% of the unpaid tax, and higher percentages apply where an understatement was deliberate. Penalties are reduced when you tell HMRC about the mistake before they find it.⁹

Marriage Allowance and a K Code

Marriage Allowance lets a lower-earning spouse transfer 10% of their Personal Allowance (£1,257 at the current £12,570 rate) to a basic-rate partner. If you have a K127 code, you have already used up your own allowance and cannot transfer any of it. You can still receive a transfer from a spouse whose income is below the Personal Allowance, and that £1,257 coming in your direction can shrink your K number or, in the right circumstances, remove the K prefix altogether.¹⁰

If a partner has recently stopped working or dropped below the Personal Allowance, it is worth checking whether a Marriage Allowance transfer would help before assuming K127 is fixed for the year.

1
GOV.UK. If You Have a K in Your Tax Code
2
GOV.UK. Income Tax Rates and Personal Allowances
3
GOV.UK. Work Out the Appropriate Percentage for Company Car Benefits
4
GOV.UK. Tax When You Get a Pension
5
Scottish Government. Income Tax Proposals for 2026-27
6
GOV.UK. Tax Codes – How to Update Your Tax Code
7
GOV.UK. P11D
8
GOV.UK. HMRC Interest Rates for Late and Early Payments
9
GOV.UK. Compliance Checks – Penalties for Inaccuracies in Returns or Documents
10
GOV.UK. Marriage Allowance Transfer