PAYE notices of coding

Produced by Tolley in association with

Employment Tax

Guidance

Notices of coding are how HMRC notifies both the employee and the employer of the tax code to be applied to the employee’s earnings. There are several types of coding notice, as detailed below. Only one of these types of notice, form P2, is sent to the employee, the others are sent to the employer only. The type of notice sent is determined by the circumstances giving rise to the change in the employee’s tax code.

The requirements for issuing a code, updating codes, and what may or may not be included in the code are set out in SI 2003/2682, reg 14. There are some complexities to the legislation. See Simon’s taxes E4.1132 for more on how a tax code is determined. The code is referred to widely as both the ‘tax code’ or ‘PAYE code’.

Form P2

This is the notification the employee receives from HMRC detailing what the tax code is and how it has been derived.

The coding starts with the appropriate personal allowance. Added to this are any reliefs that

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Ian Holloway

Payroll and Reward Consultant , Employment Tax, Personal Tax

Ian has been in the payroll profession for over 30 years, processing payrolls from all sectors, large and small. He moved from hands-on exposure in 2011 to become involved in educating the profession. His wide-ranging experience and up-to-date knowledge ensures he can impart this information to UK professionals through course material, social media, newsletters and face-to-face presentations.However, educating the profession cannot be achieved without knowing how the profession works on a day-to-day basis and involvement with hands-on administration is essential. So, today, Ian operates as a consultant and advisor and is involved with a vital aspect of the payroll and reward environment, that of working with the software that does a lot of the hard work for the profession.The return to being involved in a hands-on environment has not stopped his desire to inform, educate and train the UK payroll profession. Indeed, this is now better-achieved, as he can draw on real processing situations.Ian approaches education and communication very much from the perspective of how this will impact the software, the employer and the worker. So, whilst the legislation is vital, compliance and effective communication are paramount.Ian is Companion of the Institute for Certified Bookkeepers (ICB), committee member of the British Computer Society (BCS), a committee members of the ICAEW’s Tax Faculty and a Fellow member of the Chartered Institute of Payroll Professionals (CIPP).

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