The structure of a P2 letter
Every P2 follows the same structure. The exact layout varies slightly but the components are consistent:
- Heading: "Notice of Coding" with your name, NI number, employer, tax year
- Your tax-free allowance: the calculation
- Standard personal allowance
-
- any additions (Marriage Allowance received)
- − any deductions (BiK, owed tax)
- = Final allowance
- Your tax code: the resulting code letter
- Effective date: when the new code starts applying
- Notes: explanation of any significant items
Worked example — reading a standard P2
Your tax-free amount for 2026 to 2027
Personal allowance £12,570
Less:
Company car benefit £3,200
Private medical insurance £800
Total tax-free amount £8,570
Your tax code is 857L
Breaking this down: - HMRC starts with the standard £12,570 - Subtracts £3,200 for a company car (the cash-equivalent value HMRC was told about via P11D) - Subtracts £800 for private medical (similarly P11D'd) - Final allowance: £8,570 - Drop the last digit: 857 - Add the L suffix (standard circumstances): 857L
What each line means
Personal allowance
The standard UK personal allowance for 2026/27 is £12,570, frozen until April 2031. This is where every P2 starts. If your P2 shows something different (e.g. £11,310), check the suffix — N-suffix means you've transferred Marriage Allowance.
Marriage Allowance — received (+£1,260)
If your spouse transferred 10% of their allowance to you via Marriage Allowance, your P2 shows "+£1,260 Marriage Allowance received" and your code suffix becomes M. Total allowance: £12,570 + £1,260 = £13,830 → code 1383M.
Marriage Allowance — given (−£1,260)
You transferred 10% of your allowance to your spouse. Your P2 shows "−£1,260 Marriage Allowance" and suffix becomes N. Total: £12,570 − £1,260 = £11,310 → code 1131N.
Company car (benefit in kind)
Your employer submits a P11D detailing the company car's "cash equivalent value" — based on the car's list price, CO2 emissions, and time used. HMRC subtracts this from your allowance.
A £4,000 BiK reduces allowance by £4,000 → £12,570 − £4,000 = £8,570 → code 857L.
Private medical insurance
Treated similarly — the P11D value is subtracted from allowance.
Living accommodation
Provided housing (rare; mostly seen for caretakers, agricultural workers, certain ministers of religion). The benefit is the difference between rent paid and the property's annual rental value.
Beneficial loan
If your employer lent you money at below-market interest, the benefit value (HMRC official rate of interest minus actual rate, times loan amount) is added to your P11D and subtracted from your allowance.
Tax owed from previous years
If a previous tax year was under-collected (P800 reconciliation showed you owed extra), HMRC may recover the owed amount via this year's PAYE by reducing your allowance. The line shows "Underpaid tax for [year]" with the cash amount.
Allowance taper (high income)
If your income exceeds £100,000, the personal allowance starts tapering — £1 reduced for every £2 of income above £100,000. The P2 shows "Personal allowance reduction due to high income" with the figure.
Additional allowances and reliefs
Less common items that can appear: - Job expenses (employee professional fees, work clothing) - Gift Aid relief (if claimed via Self Assessment and adjusted via PAYE) - Charitable payroll giving - Foreign tax credit
Each adds to (not subtracts from) your allowance.
Spotting errors on a P2
The single most common error: BiK values that don't match your actual benefit.
How to spot: 1. Each BiK line should have a value (e.g. "Company car £3,200") 2. Check the value against your actual benefit 3. Where the figure originates: your employer's P11D submission
If a BiK value is wrong: - Verify with your HR / payroll team that the P11D was correct - If payroll's record is wrong, ask them to re-submit P11D - If P11D is right but HMRC's record doesn't match, contact HMRC
When a P2 contains K-code calculations
If your benefits in kind exceed your personal allowance:
Personal allowance £12,570
Less:
Company car benefit £18,000
Total tax-free amount -£5,430
Your tax code is K543
When the total goes negative, the result becomes a K-prefix code. K543 means HMRC will add £5,430 of taxable income to your salary each year. Read about K codes →
When a P2 contains a T suffix
T-suffix codes (e.g. 957T) are tailored codes where HMRC needs to track items HMRC's standard adjustments can't handle. Common reasons: - Income above £100,000 with detailed taper calculation - Multiple income sources with complex allowance allocation - Specific reliefs HMRC reviews annually
T codes are reviewed by HMRC each year; the breakdown on the P2 shows what's included.
How to use the P2 effectively
When you receive a P2:
- Compare the code to your previous one
- Check each line in the calculation
- Verify values match your actual circumstances (BiK amounts, owed tax)
- Note the effective date — typically your next pay date
- File it — keep with payslips for at least a year
- If wrong, take action immediately via Personal Tax Account
What's NOT on a P2
Several common things don't appear: - Pension contributions — handled outside the tax code via PAYE deductions - Salary sacrifice arrangements — reduce gross before tax code applies - National Insurance — separate from Income Tax, doesn't use code - Student loans — separate from PAYE income tax - Net pay — the P2 only shows the tax-free allowance, not your salary
Verifying via Personal Tax Account
The Personal Tax Account at gov.uk/personal-tax-account shows the same breakdown as the P2 letter, plus: - History of previous codes - Date the current code became effective - Ability to update underlying data online
If you've lost your P2, the Personal Tax Account is the equivalent source.
Scotland and Wales
P2 letters for Scottish (S-prefix) and Welsh (C-prefix) taxpayers look identical except for the code prefix. The calculation is identical — Scottish and Welsh personal allowance is the same £12,570 as rUK; only the bands above the allowance differ.
Practical checklist
- Read every line of the P2 letter
- Cross-check the breakdown against your reality
- Verify the final allowance = £12,570 + additions - deductions
- Confirm the code letter matches your circumstances
- Note the effective date
- If anything is wrong, log into Personal Tax Account or call HMRC
- File the P2 with your tax records
In short
A P2 Notice of Coding shows the calculation behind your tax code: standard allowance plus/minus adjustments equals your final tax-free amount. Every line is verifiable against your reality. Errors are most often in benefit-in-kind values from outdated P11D submissions — these are correctable via Personal Tax Account. For broader context see tax codes hub → and how to correct a tax code →.