What Is a PAYE Coding Notice? Definition

The PAYE coding notice is the document most people throw away and later wish they had read. It is HMRC showing its working: every allowance added and every deduction taken to arrive at the tax code your employer uses. Read it once a year and you will rarely be caught out by an unexpected tax bill.

What a Coding Notice Contains

A coding notice walks through the arithmetic behind your tax code. It starts with your tax-free allowances and subtracts anything that should reduce them:

• Allowances added - your Personal Allowance (£12,570 for 2026/27), plus any extra reliefs such as Blind Person's Allowance or professional subscriptions.
• Deductions taken away - taxable benefits in kind (company car, medical insurance), untaxed income such as a state pension, or an underpayment from an earlier year being collected.
• The resulting code - the net allowance, divided by ten, with a letter suffix (for example 1257L).

The same notice is often called a notice of coding; the two terms describe the identical document. You can read more on the notice of coding page.

Notice of coding

Another name for the PAYE coding notice (form P2). It is the HMRC statement that sets out your tax code and the allowances and deductions used to calculate it for a given tax year.

A Worked Example

Suppose Daniel earns £45,000 and has a company car with a taxable benefit of £4,800. His 2026/27 coding notice would show:

So instead of the standard 1257L, Daniel's code is 777L, meaning less of his pay is tax-free because his car benefit uses up part of his allowance. If the car benefit on the notice were wrong, say it listed a vehicle he had returned, he would be paying too much tax until it was corrected. Confirm the live code at any time by choosing to check your tax code.

Why Checking the Notice Matters

A coding notice is the earliest warning you get that something is off. Because it explains the reasoning rather than just stating the code, it lets you spot the specific item that is wrong: a benefit you no longer have, an estimated figure that is too high, an other-income amount HMRC has guessed, or an old underpayment that has already been settled. Catching it here, before the code feeds into payroll, prevents months of incorrect deductions and the hassle of reclaiming them later.

A particularly common trap is HMRC carrying forward an estimated company benefit or untaxed income from a previous year. If your circumstances have changed, that estimate can be stale, leaving you on the wrong code for months. The notice is also where adjustments for things like the High Income Child Benefit Charge or a state pension appear, so it is the document that ties together everything affecting your PAYE tax. Scottish taxpayers will see an S prefix (S1257L) and Welsh taxpayers a C prefix (C1257L) on their notice, reflecting which nation's rates apply, even though Welsh rates currently match those in England.

“A coding notice is HMRC explaining itself in advance. Ignore it and you accept its assumptions; read it and you can correct them before they cost you.”

Coding Notices and the Self-Employed

If you are purely self-employed, you will not normally receive a coding notice, because a tax code only governs income taxed through PAYE. Your tax is settled annually through Self Assessment, and from April 2026 through Making Tax Digital quarterly updates feeding into a final declaration. However, if you also have employment or a pension alongside your self-employment, those sources have a tax code and you will receive a coding notice for them.

There is one situation where the two worlds meet directly. If your Self Assessment bill is under £3,000 and you have a PAYE income, HMRC can collect that balance by adjusting your tax code rather than asking for a separate payment, a process it calls coding out. When it does, the adjustment appears on your coding notice, so even sole traders with a side job or a pension should read any notice they receive rather than assuming it is irrelevant to them.

Related terms

• Notice of coding - the alternative name for the same document.
• Check my tax code - view the live code that a notice sets.
• Tax codes - what the letters and numbers on your code mean.

People also ask

What is the difference between a coding notice and a payslip?

A coding notice comes from HMRC and explains how your tax code was calculated, including the allowances and deductions behind it. A payslip comes from your employer and shows the result, your gross pay, the tax actually deducted using that code, and your net pay. The notice is the reasoning; the payslip is the outcome.

Why have I received a coding notice mid-year?

HMRC issues a coding notice whenever something changes that affects your tax-free allowance, such as a new company benefit, the start or end of a second job, a new untaxed income, or the need to collect an underpayment. A mid-year notice usually means your code is being adjusted, so it is worth reading to understand why your take-home pay may change.

Is a P2 the same as a P60 or P45?

No. A P2 coding notice tells you your tax code before or during the year. A P60 is an end-of-year summary of total pay and tax from an employer, and a P45 is issued when you leave a job. The P2 sets the code; the P60 and P45 report what was actually paid and deducted.