A tax coding notice, formally the P2 Notice of Coding, is the letter HMRC sends to explain how your tax code was worked out for the year ahead or after a mid-year change. It shows your Personal Allowance, lists anything that adds to or reduces it (company benefits, untaxed income, tax owed from an earlier year), and gives the final code your employer or pension provider will use to decide how much Income Tax to take from each payment.1HM Revenue and Customs. PAYE Manual – PAYE11030 – Coding: Codes: How They Are Used and Calculated: P2 Notice of Coding Read alongside your payslip, it tells you whether the right amount of tax is coming out of your wages.
What the Number on Your Notice Represents
The number at the front of your code is your tax-free income for the year with the last digit dropped. HMRC starts with your Personal Allowance, subtracts any deductions, and turns the result into that shorter figure. For the 2026/27 tax year the standard Personal Allowance is £12,570, which is why most employees on one job see 1257 at the start of their code.2GOV.UK. Tax Codes: What Your Tax Code Means
When something reduces your allowance, the number shrinks with it. A worker with £2,000 of taxable company benefits ends up with £10,570 of tax-free pay and a code number of 1057. HMRC uses this to spread the tax due on those benefits across every payday, rather than sending a bill later.
What the Letter on Your Notice Represents
The letter (or pair of letters) after the number tells your employer which set of rules applies. The ones you are most likely to see:
- L — the standard Personal Allowance. Most single-job employees are on 1257L.
- M — you have received a Marriage Allowance transfer of £1,260 from your spouse or civil partner.
- N — you have transferred £1,260 of your allowance to your spouse or civil partner, so yours is lower.
- T — HMRC needs to review items in your code each year before finalising the allowance.
- 0T — no Personal Allowance is applied, either because it is used up elsewhere or because your employer does not yet have enough information about you. Every pound is taxed.2GOV.UK. Tax Codes: What Your Tax Code Means
- K — your untaxed income or debts to HMRC exceed your Personal Allowance. Instead of showing you a tax-free figure, the code adds a notional amount to your taxable pay so extra tax comes out through payroll.3GOV.UK. Understanding Your Employees’ Tax Codes
Codes Used for a Second Job or Pension
Your Personal Allowance can only sit against one source of income. Any extra job or pension usually gets a flat-rate code:
- BR — every pound taxed at the basic rate.
- D0 — every pound taxed at the higher rate.
- D1 — every pound taxed at the additional rate.
- NT — no tax deducted at all.2GOV.UK. Tax Codes: What Your Tax Code Means
BR on a second job is normal. What causes trouble is the opposite: your main job on BR and your smaller job holding the allowance. That mismatch generally produces an over- or underpayment by year end, so check that the allowance sits against your larger income.
S and C Prefixes
If your main home is in Scotland, your code starts with S (for example, S1257L). If it is in Wales, it starts with C (for example, C1257L). The prefix tells your employer to apply the income tax rates set by the Scottish or Welsh parliament rather than the rates used in England and Northern Ireland.4HM Revenue and Customs. PAYE Manual – PAYE13145 – Coding: General Principles: Scottish Income Tax / Welsh Income Tax Scottish rates can differ meaningfully from the rest of the UK.5GOV.UK. Income Tax in Scotland: Current Rates If you move across the border, tell HMRC so the prefix is updated; otherwise the wrong rates apply until the mistake is caught.
Emergency Codes
If your notice or payslip shows W1, M1, or X after the code, or the word NONCUM, you are on an emergency code.6GOV.UK. Tax Codes: Emergency Tax Codes A normal cumulative code spreads your Personal Allowance evenly across the year and takes your earnings since 6 April into account each payday. An emergency code treats each pay period on its own, as though that pay level repeats every week or month. The result is usually short-term overpayment, because earlier months of the year are ignored.
Emergency codes are meant to be temporary. HMRC swaps them for a proper code once it has your full income history from your previous employer or pension. If more than 35 days have passed since you started a new job and you are still on one, contact HMRC.7GOV.UK. Tax Codes: If You Think Your Tax Code Is Wrong Emergency codes can also appear when you begin drawing company benefits or the State Pension partway through the year, in which case they usually run until 6 April and are replaced by a normal code for the following year.6GOV.UK. Tax Codes: Emergency Tax Codes
Why a New Notice May Have Arrived Mid-Year
A notice landing outside the normal spring cycle almost always reflects a change HMRC has picked up. Common reasons:
- Company benefits. A company car, private medical insurance, or another taxable perk reduces your allowance. Employers report benefits on a P11D and HMRC feeds the value into your code.8GOV.UK. Expenses and Benefits for Employers: Reporting and Paying
- State Pension or other untaxed income. The State Pension is taxable but paid without deductions, so HMRC recovers the tax by lowering the allowance on a private pension or your wages.9GOV.UK. Tax When You Get a Pension – How Your Tax Is Paid
- Underpaid tax from an earlier year. If a P800 shows you owe less than £3,000, HMRC generally collects it by tweaking your code over the next 12 months rather than asking for the money in one go.10GOV.UK. Tax Overpayments and Underpayments – If Your Tax Calculation Letter P800 Says You Owe Tax
- High Income Child Benefit Charge. HMRC can now collect this through your code instead of Self Assessment.2GOV.UK. Tax Codes: What Your Tax Code Means
- Marriage or a new job. Marriage opens up the Marriage Allowance transfer, and a new salary changes the income estimate HMRC uses to build the code.
Each of these triggers a fresh P2 to you and your employer so the next payroll run reflects the update.
The 50% Deduction Cap
However large the numbers on your notice, HMRC cannot take more than 50% of your gross pay through the tax code in any single pay period. The cap is set in law to stop payroll from leaving you with too little to live on.11GOV.UK. Explanatory Memorandum to PAYE Regulations Anything the code cannot recover within that limit rolls forward, usually to be collected through Self Assessment or a direct payment.
Checking and Correcting the Notice
Work through the notice line by line against your own records. Have your P60 (annual pay and tax summary) and any P11D forms to hand, along with figures for rental income, dividends, or savings interest if they apply to you.12GOV.UK. Your P45, P60 and P11D Form The notice lists everything adding to or subtracting from your allowance, so an error usually stands out once you compare it with what you actually earn and receive.
The fastest way to correct something is the Check your Income Tax service inside your Personal Tax Account on GOV.UK, or the HMRC app. You can update income estimates, report new benefits, and record changes to your circumstances there.13GOV.UK. Check Your Income Tax for the Current Year If you can’t set up an online account, call the HMRC Income Tax helpline with your National Insurance number and the details of what needs to change.
Once HMRC accepts the update, a revised P2 goes to you and your employer within 15 working days.7GOV.UK. Tax Codes: If You Think Your Tax Code Is Wrong Monthly-paid employees usually see the new code on the next or the following payslip; weekly-paid employees typically by the third payslip after the change.
If HMRC Disagrees With You
You have a formal right to appeal a coding decision. The deadline is 30 days from the date on HMRC’s decision letter, not the date it reaches you.14GOV.UK. Disagree With a Tax Decision or Penalty Appeals go in writing. If HMRC sticks with its position, you can ask for an internal review by a different officer, and if that review still goes against you, the next stage is the First-tier Tribunal (Tax Chamber), which hears disputes independently. Most disagreements settle well before that point, but the route is there when a notice is genuinely wrong.