Understanding the P2 Tax Coding Notice

Reviewed by Ed WilkinsonLast updated: June 24, 2026 5:04 pm

a notebook with the word taxes printed on it

Image credit: Polina Tankilevitch @Pexels

In this article:

What is a P2 Tax Coding Notice?
Key Components of the P2 Tax Coding Notice
How to Interpret Your Tax Code
What to Do If You Think Your Tax Code Is Wrong
A Financial Adviser Can Help

HM Revenue and Customs (HMRC) issues a PAYE coding notice (form P2) to tell you the tax code it intends to use for the tax year. Your code determines how much Income Tax your employer or pension provider deducts under PAYE. Below, we explain what the notice shows, how to read it, and what to do if something looks wrong.

What is a P2 Tax Coding Notice?

A P2 (PAYE coding notice) is sent to many employees and pensioners taxed through PAYE, usually when HMRC sets or changes your tax code. You may receive it by post or view it in your Personal Tax Account¹, and you might not get a notice every year. It sets out the code HMRC plans to use and how it has been calculated, including your Personal Allowance², any taxable benefits, and any adjustments for underpayments or repayments in earlier years.

Additional Details Included in a P2 Tax Coding Notice

Alongside the basic information about your tax code, the P2 Tax Coding Notice also includes other useful details:

The estimated total income for the upcoming tax year is used to calculate your code. HMRC bases this on information from employers or pension providers, as well as previous pay or pension figures.
A summary of any changes from the previous year’s tax code and the reasons for those changes.
Notifications of any tax collected for earlier years (for example, underpayment recovery) or repayments due.

Importance of the Notice for Financial Planning

The information in your P2 notice helps you check that the right tax is taken during the year. Accurate coding reduces the risk of overpaying or underpaying tax, which in turn affects your monthly income.

For the 2026/27 tax year, check that your code reflects any recent changes, such as marriage or civil partnership (including any Marriage Allowance transfer), retirement, starting to receive the State Pension, or changes to benefits in kind (for example, healthcare or a company car). These events can directly affect your code and may lead to updated P2 notices.

Responding to Errors in Your Tax Code

If you spot a discrepancy, contact HMRC promptly via your Personal Tax Account or the Income Tax helpline. Have relevant documents to hand (such as recent payslips, P60S, or pension statements) to help HMRC correct your record quickly.

Reviewing your P2 notice each year helps you stay compliant and avoid unexpected bills. If you find the details complex, consider taking regulated advice. A professional may charge a fee, and any guidance should be tailored to your circumstances.

Key Components of the P2 Tax Coding Notice

Understanding the various components of your P2 notice helps you check that you are paying the correct amount of tax. Typical elements include:

Tax Code: A mix of letters and numbers that shows how your Personal Allowance and any adjustments are applied through PAYE.
Taxable Income: HMRC’s estimate of your annual income from sources such as employment and pensions. This estimate drives the code it applies.
Adjustments: Deductions or additions to your allowance, including benefits in kind, earlier-year underpayments to be collected, or other coding changes for the 2026/27 year.
Explanation of Changes: A summary of why your code differs from last year, such as changes in income, benefits, or corrections to past records.

Additional Insights into Your Tax Code

A common tax code is ‘1257L’, where ‘1257’ represents a £12,570³ Personal Allowance and ‘L’ indicates eligibility for the standard Personal Allowance. Some codes include a prefix, such as ‘S’ (Scotland) or ‘C’ (Wales), to indicate which set of tax rates applies.

Understanding Tax Code Letters

BR: All income from this source is taxed at the basic rate for your tax band.
0T: Used when your allowances are fully used, or your employer or pension provider does not have enough information to issue the full code.
K: Shows deductions (for example, benefits in kind) exceed your Personal Allowance, creating a negative allowance.

Importance of Monitoring Tax Code Adjustments

The adjustments section shows any amounts being added to or taken from your allowance and can directly affect your take-home pay.

For 2026/27, the standard Personal Allowance remains £12,570. Many employees and pensioners will therefore continue to see a 1257L code unless specific adjustments apply.

How to Interpret Your Tax Code

Interpreting your tax code correctly helps you understand how much tax you will pay through PAYE.

L: You are entitled to the standard tax-free Personal Allowance.
T: There are additional calculations involved in setting your allowance (for example, because of income adjustments or age-related considerations).
BR: Income from this source is taxed at the basic rate.
0T: Applied when your allowances are exhausted, or HMRC lacks complete information to issue a full code.
K: Deductions for items such as company benefits exceed your allowance, resulting in a negative allowance being coded.

Detailed Insights into Your Tax Code

Your code reflects your specific situation, including allowances and any taxable benefits. For example, if you receive a company car, the calculated benefit value is added to your taxable income and may result in a ‘K’ code if it outweighs your allowance.

Impact of Personal Allowance Adjustments

Any reduction in your Personal Allowance increases the tax you pay. Conversely, additional reliefs or allowances reduce the tax you pay and may increase your take-home pay.

Understanding Changes in Your Tax Code

Your code can change during the year. Common triggers include:

A change in taxable income (starting or leaving a job, a pay rise, or reduced hours).
Changes to employer-provided benefits, such as starting or stopping a company car or medical insurance.
Corrections by HMRC for earlier-year underpayments or overpayments.

Check your code whenever your circumstances change, and query unexpected updates with HMRC to avoid underpayments or overpayments.

What to Do If You Think Your Tax Code Is Wrong

If you suspect your tax code is incorrect, act promptly to minimise overpayment or underpayment. Contact HMRC via your Personal Tax Account or the Income Tax helpline⁴ and provide details of your income, recent changes, and what you believe is wrong with the P2 notice.

Steps to Address an Incorrect Tax Code

Follow these steps to help HMRC resolve things efficiently:

Gather Documentation: Collect recent payslips, P45/P60S, and details of benefits or pensions to evidence your position.
Understand Your Current Code: Review the explanations in your P2 notice so you can explain exactly what seems incorrect.
Communicate Clearly: Set out which figures you think are wrong (for example, estimated pay, benefits, or employer details) and why.
Keep Records: Note dates, who you spoke to, and what was agreed, and keep any HMRC correspondence.

Importance of Regular Review

Review your code annually when you receive a new P2 and after any major life or financial changes (such as a change of job, marital status or retirement). This helps ensure deductions remain accurate.

For 2026/27, the standard Personal Allowance (£12,570) and the main Income Tax bands in England, Wales and Northern Ireland remain frozen. These settings influence how your code is calculated.

When to Seek Professional Advice

If issues persist after speaking to HMRC, consider regulated advice. A qualified accountant or tax adviser can help where there are multiple income sources, benefits in kind, or cross-border considerations. Professional advice may involve fees.

Taking these steps helps keep your tax contributions accurate and aligned with current law, reducing the risk of unexpected bills or refunds later.

A Financial Adviser Can Help

Tax rules can be complex, particularly with multiple jobs, pensions or benefits in kind. A regulated financial adviser or tax professional can explain how your code works, help you provide accurate information to HMRC, and consider tax-efficient planning where appropriate. Always check the adviser is authorised by the Financial Conduct Authority (FCA) and ask about fees before proceeding. This article is for information only and does not constitute personal tax advice.

At FinancialAdvisers.co.uk, we can introduce you to an FCA-authorised financial adviser in your area to discuss your situation. Any advice will be provided by the adviser, not by this website, and may involve fees or charges.

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