Tax code notices and related letters

What this letter usually means

HMRC issue a tax code notice, often called a P2, to tell you and your employer or pension provider the tax code that should be used under PAYE. The code controls how much of your income is tax free before tax is taken. A common code reflects the standard personal allowance, but yours may be adjusted for things like a company benefit, untaxed income, or tax owed from an earlier year.

There are related letters that often cause confusion. A P800 is a tax calculation, usually sent after the tax year ends, showing whether you paid too much or too little. It may tell you a refund is due, or that there is an underpayment to settle. A Simple Assessment is a letter asking you to pay tax that HMRC believe is due, often where the amount cannot be collected through your code. None of these letters are penalties. They are HMRC explaining your position and, where needed, asking you to act.

Who it affects

Tax codes affect anyone who pays tax through PAYE, which includes most employees and many people drawing a pension. If you have a job, a workplace or private pension, or more than one source of income, you will have a tax code for each one. People with a single employment and no extra income usually have the most straightforward codes.

The letters become more likely when your circumstances change. Starting a new job, having more than one job at once, receiving a company benefit such as a car or medical cover, drawing a pension, or having savings income can all prompt HMRC to adjust your code or send a calculation after the year end. If you are an employer running PAYE for staff, you will also receive code notices to apply to their pay, and our page on payroll covers that responsibility.

Self employed people and others who file a tax return deal with their tax differently, but a tax code can still apply if they also have employment income.

What you must not ignore

It is tempting to set a tax letter aside, but a wrong code quietly affects every payslip, so it is worth checking promptly. If your code is too low, you are likely paying more tax than you need to, and that money is yours. If your code is too high, you may be paying too little, which can build into an underpayment that has to be repaid later.

Watch out for emergency codes. Codes ending in W1 or M1, or starting with BR or 0T, are temporary measures used when HMRC do not yet have full details, often after starting a new job. They can result in too much tax being taken until the correct code is applied, so they should be sorted out rather than left in place.

If you receive a P800 showing an underpayment, or a Simple Assessment asking for tax, do not ignore the request to pay. Equally, if a refund is offered, make sure it is genuinely from HMRC and follow the official route, because scammers imitate these letters. When in doubt, check through your own personal tax account rather than clicking a link.

What you may need to gather

To check whether your code is right and to query it if needed, it helps to have these to hand.

• The notice itself, showing the code and how it has been worked out.
• Your most recent payslips, so you can see the code currently being used.
• Your National Insurance number and, if you have one, your Unique Taxpayer Reference.
• Details of all your income, including each job, pension, and any savings or untaxed income.
• Details of any company benefits, such as a car or private medical cover.
• Any P800 or Simple Assessment letters, and last year P60 if you have it.

With these together, you can compare what HMRC have assumed against your actual circumstances and spot anything that looks out of date. If your tax situation is complicated by self employment as well, our guide on self assessment may also help.

What to do, step by step

Working through these steps will tell you whether the code is right and how to fix it if not.

• Read the notice and note the code and the adjustments HMRC have made.
• Check it against your circumstances. Do the benefits, jobs and income shown match your real position?
• Look at your payslip to confirm which code your employer is actually using.
• Use your personal tax account to view and, where possible, update the figures HMRC hold, such as a benefit that has ended.
• Contact HMRC if something is wrong that you cannot change yourself, and ask them to issue a corrected code.
• Keep an eye on your next payslip to confirm the new code has been applied and any overpayment is being put right.

If the figures are confusing or you are not sure what is correct, you can book a call and we will help you read the notice and decide what to do.

A worked example

Emergency codes are one of the most common reasons people pay too much tax for a short time. Because a temporary code may not give your full tax free allowance, more tax than necessary can be deducted until the correct code arrives. Once corrected, the overpayment is usually repaid through your pay.

When to speak to an accountant

Many code questions can be resolved by checking your details and contacting HMRC. Some situations, though, are worth a professional eye. If you have several sources of income, company benefits, a recent change in pension arrangements, or a P800 or Simple Assessment you do not understand, an accountant can check the figures and make sure you neither overpay nor build up an unexpected bill.

We can review how your code has been calculated, identify any out of date adjustments, deal with HMRC on your behalf, and confirm that any refund or underpayment is handled correctly. If a letter has arrived alongside other HMRC matters, our overview of HMRC penalties explains how the wider system fits together. If you would like us to take a proper look and put your mind at rest, you can start your quote.

Frequently asked questions