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HMRC internal manual

PAYE Manual

Coding: codes: how they are used and calculated: P2 notice of coding

The P2 is a personalised communication telling the customer what makes up their code(s)and provides an explanation of each coding item.  There is an invitation to make contact, for example, if the customer’s circumstances have changed and a deduction or allowance is no longer relevant.

From 28 October 2015 the P2 notice of coding will include all live employments and/or pensions on a single form.

Where the tax code has an S prefix, this indicates the individual is a Scottish resident and tax is deducted at the appropriate Scottish tax rates for Scottish taxpayers. Further information on the Scottish rate of income tax is given at PAYE100035.

From 2 July 2017, when we amend a customer’s code we will carry out a full calculation for the year.  Where extra tax is due the new code will include an In Year Adjustment (IYA) and In Year Adjustment Restriction (IYAR) to collect the extra tax over the remaining weeks or months of the tax year. The tax code will be operated on a week 1 or month 1 basis. This should mean that most of our customers pay the right tax and will not be overpaid or underpaid at the end of the tax year.

From the above date we will not calculate any further Potential Underpayments (PUPs) in tax codes.  We will refer to the extra tax due as an In Year Adjustment (IYA) and the coding restriction will be described as In Year Adjustment Restriction (IYAR).

The P2 notes will be added by the system to explain what the tax code means.  The remainder of this subject is presented as follows

Features of the P2
P2 Manual issue
P2 Notes for codes with no allowances or deductions
P2 Special notes
P2 Standard notes
P2 Welsh language

Features of the P2

The P2

  • Is personalised to fit each customer’s circumstances
  • Includes the customers  employments / pensions and National Insurance number and gives their HM Revenue and Customs phone number
  • Explains why customers need a tax code, why they need to check that their code is correct and confirms what their tax code will be for the year, or remainder of the year
  • Displays an arithmetical breakdown of how their code is made up, by showing what their Personal Allowance entitlement is, anything that reduces their tax free amount.  For example if they receive benefits in kind from their employer
  • Shows ‘a positive or negative tax-free amount’ Where the tax-free amount is negative (K Codes) it includes an explanatory note. Gives an explanatory note for each element included in their code, explains how much the customer can earn before they start to pay tax and shows how much will be taxed at each of the tax bands

P2 Manual issue

Where a P2 cannot be issued because of the Manual Correspondence indicator, check the reason why the indicator is set using Contact History (cancel the indicator if appropriate).  Issue a P2 from the system.  If capacitor details or correspondence address details appear on the individual’s record then any printed output will be directed to the relevant address.

P2 Notes for codes with no allowances or deductions

There are explanatory notes for codes with no allowances or deductions, used mainly for secondary source records.  These codes are BR, 0T, NT, or D prefix.

Note:  Where tax code 0T has been calculated for a primary employment which contains allowances and / or deductions, a P2 will be issued.

Further guidance is given at PAYE11025.

P2 Special notes {#}

There is provision to add some special notes in certain circumstances.

Further guidance is given at PAYE11035.

P2 Standard notes

There are a number of standard notes that explain how a customer’s tax code is made up.  The standard notes are generated automatically based on the allowances and deductions in the customer’s code.

Further guidance is given at PAYE11040.

P2 Welsh language

Where the Welsh language indicator is set on the individual’s record then any printed output will be directed to the Welsh Contact Centre to issue the P2.