HMRC tax code letter explained
A tax code notice can look like a decision written in shorthand. We turn the code, allowances, deductions and estimated figures into a clear map of what HMRC says it has used.
What this letter usually means
This letter usually explains the tax code HMRC has told an employer or pension provider to use. A changed code does not automatically mean you have done anything wrong.
Choose the bit you need right now
Open one view at a time. This keeps a detailed guide manageable when you only need one answer.
Find these six parts
Your tax code
The letters and numbers HMRC has issued for a particular job or pension.
Tax-free amount
The allowance HMRC has included before tax is calculated.
Additions
Items that may increase the tax-free amount, such as certain reliefs shown in the notice.
Deductions
Amounts HMRC has taken away for items such as untaxed income or tax it expects to collect.
Estimated income
The pay or pension figure HMRC currently expects for the year.
Employer or pension
The source of income to which this particular code applies.
Compare the letter with what you already have
- Does the employer or pension provider named on the notice look right?
- Are any old jobs, duplicate employments or pensions still included?
- Do the estimated income and benefit figures look broadly familiar?
- Is the code marked W1, M1, week 1, month 1 or X?
- Has a recent change in work, pension or benefits not yet reached HMRC?
Plain-English mini glossary
PAYE
The system used to take Income Tax from wages and many pensions.
P2
A PAYE Coding Notice explaining a tax code HMRC has issued.
K code
A code used when deductions are greater than allowances. It needs reading with the figures in the notice.
BR, D0 or D1
Codes that tax all income from that source at a particular rate, without a tax-free allowance there.
W1, M1 or X
Markers showing the code is being used on a non-cumulative basis for the current pay period.
Estimated
A figure HMRC is using for now; it is not necessarily a final figure.
Useful neutral questions
- Which job or pension does this code apply to?
- Which exact figure caused the code to change?
- Is any income, benefit or employment listed twice or no longer current?
- If a figure is corrected, when should the new code reach my employer or pension provider?
- Will the change affect only future pay, or is earlier tax being adjusted too?
These are prompts, not a statement that anything is wrong.
From envelope to clear next conversation
Match the letter
Check which employment or pension the code belongs to.
Compare the ingredients
Look at the income, allowances and deductions HMRC lists.
Check official records
Use your Personal Tax Account or HMRC app, or contact HMRC through GOV.UK.
Save the notice
Keep it with the relevant payslips or pension statements.
Try the short audio summary
Use the button to hear this page’s quick explanation. If you order, you can also request a personalised audio copy of the explanation made from your own letter.
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Clarity Companion explains document wording only. It does not check tax calculations, provide tax, financial or legal advice, contact HMRC, submit an appeal or act as your representative.
PAYE · P2 coding notice FAQs
Does a changed tax code mean I owe money?
Not always. Codes can change because HMRC has received new information about income, benefits, allowances or an earlier estimate. The notice should show the figures used.
Can Clarity Companion tell me whether my code is correct?
We can explain the wording and show you which figures the letter uses. We do not calculate your correct tax code or provide tax advice.
Should I give the letter to my employer?
The notice normally says HMRC has sent the code electronically to the employer or pension provider. Follow the instructions in your own letter and ask HMRC if anything is unclear.
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