PAYE11040 - Coding: codes: how they are used and calculated: P2 notes

There are a number of  P2 notes that explain how a customer’s tax code is made up.  The notes are generated automatically based on the allowances and deductions in the customer's code.  The table below gives a list of coding descriptors and the explanatory note.  All the notes will be numbered consecutively on the P2, if Personal Allowances are present these will be note 1.

Subsequent note numbers will vary depending on the customers’ circumstances.

The note explaining the tax-free amount also shows how much will be charged at the different tax bands and when the higher rate band starts.

The table is presented as follows

Allowances
Reliefs and Expenses
Deductions

Allowances

Item	P2 Description	P2 Standard Note
Blind Person’s Allowance	Blind person's allowance	This is an extra amount of tax-free allowance. This means you can earn more before you start paying Income Tax. For more information go to www.gov.uk/blind-persons-allowance
Personal Allowance	Personal Allowance	This is the standard amount of taxable income most people can have before they start paying Income Tax. If your total income exceeds £[taper start], your allowance goes down proportionally.
Personal Savings Allowance Note: this will no longer be displayed from November 2017 as this will be applied as a zero-rate band	Personal Savings Allowance	This is the tax-free amount in respect of your personal savings.
Married Couple’s allowance (aged 75 and over and one of couple born before 6 April 1935)	Married couple's allowance	This is based on your total income and is due if you are married or in a civil partnership, and living together, and at least one partner was born before [201]. This is subject to an income limit which changes every year. If your adjusted net income exceeds the limit, your allowance goes down proportionally. Tax relief is given at [202]% of the allowance. For more information go to www.gov.uk/married-couples-allowance
Wife’s Married Couple’s allowance (Form 18 election made)	Transfer of Married couple's allowance	This is an extra amount of tax-free allowance that has been transferred to you from your partner
Married Couple’s allowance from husband	Transfer of Married couple's allowance	This is an extra amount of tax-free allowance that has been transferred to you from your partner.
Surplus Married Couple’s allowance transferred to wife	Transfer of Married Couple’s Allowance	This is the married couple’s allowance you have transferred to your partner.
Marriage Allowance	Recipient (Suffix M) - Transfer of Allowance	Your partner applied to transfer some of their Personal Allowance to you.   If you are married or in a registered civil partnership and do not pay tax above the basic rate you can receive some of your partner’s Personal Allowance so you can pay less tax.  From 06 / 04 / [TAX YEAR] the amount you can receive is £[AMOUNT].
Marriage Allowance	Transferor (Suffix N) - Transfer of Allowance	You applied to transfer some of your Personal Allowance to your partner.   If you are married or in a registered civil partnership and do not pay tax above the basic rate you can transfer some of your Personal Allowance to your partner so they can pay less tax.  You transferred £[AMOUNT] to your partner this year.

Top of page

Reliefs and Expenses

Item	P2 Description	P2 Standard Note
Concessional Relief	Concessional relief	This is tax relief for things like a gift of shares to charity or other qualifying investments.
Trade Union / Friendly Society or Widows and Orphans	Death, sickness and funeral benefits	This is the tax relief for one half of your trade union subscriptions that relates to superannuation, life assurance or death benefits paid by the union, up to a maximum of £100.
Double Taxation Relief	Double taxation relief	This is the Tax Relief given because you have paid foreign tax on your foreign income. For more information go to www.gov.uk/tax-foreign-income/overview
Enterprise Investment Scheme	Enterprise investment relief	This is the estimated tax relief for money you invested in a business enterprise.
Flat Rate Job Expenses	Flat rate job expenses	This is the tax relief for expenses associated with your employment for things like tools and specialist clothing.
Job Expenses	Job expenses	This is the estimated tax relief for any expenses associated with your employment for travel or things you must buy for your job.
Professional Subscriptions	Professional subscriptions	This is the tax relief for subscriptions you pay to an HMRC-approved professional body.
Foreign Pension Allowance	Foreign pension allowance	This is the tax relief you are entitled to in respect of your foreign pension.
Charity Gifts Relief	Charitable Donation	Your donations to charity or to community amateur sports clubs (CASCs) are tax-free. As we expect you to pay some higher rate tax you will be entitled to relief on your donations to charity.
Personal Pension Relief	Personal Pension Relief	This is the tax relief you have claimed for your personal pension contributions because you pay Income Tax at a higher rate. Basic rate tax relief is given at source by your pension provider.
Loan Interest	Loan Interest	This is the estimated tax relief for interest you pay on a qualifying loan. Let us know if you expect to pay off this loan during the year.
Loss	Loss relief	This is the tax relief given for business losses you have claimed.
Maintenance Payments (one of couple born before 6 April 1935)	Maintenance payments	You are entitled to tax relief at 10% on this. Please tell us when your payments stop or the child becomes 21.
Retirement Annuity Payments	Payments towards a retirement annuity	This is the tax relief for the amount you pay towards a retirement annuity each year.

Top of page

Deductions

Item	P2 Description	P2 Standard Note
Adjustment to tax rate bands	Adjustment to tax rate bands	We have included this adjustment as you have more than one job or pension and we estimate some of your income is taxable at a higher rate
Personal Pension Annuity	Personal Pension Annuity	We use your tax-free allowances against your personal pension annuity income so you pay tax on this.
Balancing Charge	Balancing charge	This has been included for the tax you pay on the sale of your assets.
Dividend Tax	Dividend Tax	This is to collect the basic rate of tax due on your dividend income.
Service Benefit	Service benefit	You pay tax on long-service rewards your employer(s) provide(s) you.
Car Benefit	Car benefit	This is given to you (or your family) to use privately, including for journeys between home and work. You pay tax based on the value of the company car. You can check these details or change your car online by going to www.gov.uk/update-company-car-details  You must verify your identity when you use the online service for the first time.
Fuel Benefit	Fuel benefit	Note 99 Fuel Benefit This is the fuel your employer(s) provide (for you or your family) to use privately, including for journeys between home and work. You can change these details online by going to www.gov.uk/update-company-car-details
Charitable Donation Adjustment (Taxed Annual Payments)	Charitable Donation adjustment	You have not paid enough tax to cover the amount of tax reclaimed by your charity. We have reduced your tax-free allowance to recover the amount due.
Commission	Commission	We use your tax-free allowances against this income so you pay tax on this.
Benefits in Kind	Benefits in Kind	You pay tax on any taxable benefits or taxable expenses your employer(s) provide(s) you.
Employment and Support Allowance (ESA)	Employment and Support Allowance	This is taxable but tax is not taken off this benefit before it is paid to you.  We use your tax-free allowance against your benefit so you pay tax on this.
Job Expenses	Job Expenses	This is the estimated expenses associated with your employment for travel or things you must buy for your job. You will receive tax relief on the amount you claim at the rate of tax you pay.
Jobseeker’s Allowance	Jobseeker's allowance	This is taxable but tax is not taken off this benefit before it is paid to you. We use your tax-free allowances against this benefit so you pay tax on this.
Forces Pension	Forces pension	This is taxable but tax is not taken off this income before it is paid to you. We use your tax-free allowances against this income so you pay tax on this.
Untaxed Interest	Interest without tax taken off	This is interest paid to you before tax is taken off. We have reduced your tax-free allowance so you pay tax on this income.
Beneficial Loan	Employer Loan Benefit	You pay tax on the difference between the interest rate you pay to your employer and the official rate of interest set by the Bank of England.
Medical Insurance	Medical insurance	You pay tax on any taxable benefits or expenses your employer(s) provide(s) you.
Other Earnings (Not Earnings)	Other earnings	We use your tax-free allowances against your other income so you pay tax on this.
Other Earnings (Earned Income)	Other earnings	We use your tax-free allowances against your other income so you pay tax on this.
Other Income (not earnings) for example untaxed investment income or foreign income	Other income (not earnings)	We use your tax-free allowances against your other income so you pay tax on this.
Occupational Pension	Other pension	We use your tax-free allowances against your other income so you pay tax on this.
Part Time Earnings	Part time earnings	We use your tax-free allowances against your other income so you pay tax on this.
Non cash benefit	Previous employer benefits	Where tax is not taken off before it is paid to you. We use your tax-free allowances against this income so you pay tax on this.
Property Income	Property income	This is the rental income that you get from property or land. We use your tax-free allowances against this income so you pay tax on this.
Public Service Pension	Public services pension	We use your tax-free allowances against your public service pension income so you pay tax on this.
Underpayment Amount	Underpayment restriction present	We previously told you that you owe £<UPC> tax from an earlier tax year. We have therefore included an adjustment to reduce your tax-free allowance by £<UPR> so we can collect the £<UPC> tax in equal instalments. To make sure you pay the £<UPC> by 5 April <YYYY>, we will increase the amount of tax deducted from your wage, salary or pension
Outstanding Debt amount	Reduction to collect unpaid Self-Assessment Outstanding Debt	This is the outstanding debt you owe HMRC from a previous year. You owe £[204].  This is due to individual debt(s) as follows:
-	and/or	SA:£[amount]
-	Tax Credit	NTC:£[amount]
-	Class 2 NIC	Class 2: £[amount]
-	--	To collect this we divide the total amount by the rate of tax you pay to calculate an adjustment to your tax-free allowance. Note: The P2 will only show the type of debt coded out, it will not show nil values
Child Benefit	Child Benefit Charge	This is a deduction to recover the Child Benefit you or your partner receives as we expect your income to exceed £[minimum income limit]. We will check this when we receive your tax return for the year to 5 April [CCYY]. For more information about Child Benefit go to www.gov.uk/child-benefit-tax-charge
Savings income taxable at higher rate	Higher Rate Tax Adjustment	Up to 5 April 2016, interest from bank or building societies or company dividends is usually taxed before being paid to you. From 6 April 2016 the majority of bank/building society investments will be paid gross without tax deducted.
Taxable Expenses Payment	Taxable expenses payments	This is a payment made by your employer for using your own car to carry out your employers business. We have reduced your tax-free allowance so you pay tax on this.
Incapacity Benefit	Taxable incapacity benefit	This is taxable but tax is not taken off this benefit before it is paid to you. We use your tax-free allowances against this benefit so you pay tax on this.
Telephone	Telephone	You pay tax on any taxable benefits or expenses your employer(s) provide(s) you.
Tips	TIPS	We use your tax-free allowance against your tips so you pay tax on this.
Van Benefit	Van benefit	This is given to you (or your family) to use for more than just your journeys to and from work. You pay tax on this benefit.
Van Fuel (where Van Benefit in code)	Van Fuel benefit	This is the fuel your employer provides for private motoring in your company van.
Annual amount of state pension present and not a CY start date Note: this would be the state pension message we always expect in annual coding	State pension	This income is taxable but tax is not taken off the payments before they are paid to you.  We use your tax-free allowance against your pension so you pay tax on this. If your State Pension is paid every four weeks you will receive 13 payments in a year. You don’t pay National Insurance contributions when you reach State Pension age so your employer(s) or pension provider(s) should not take National Insurance contributions from you. For more information go to  www.gov.uk/tax-national-insurance-after-state-pension-age/stopping-paying-national-insurance
Annual amount of state pension present and CY start date	State Pension	This income is taxable but tax is not taken off the payments before they are paid to you.  We use your tax-free allowance against your pension so you pay tax on this. Although we have shown the estimated State Pension for the full year, we know you won't receive the full amount this year. We have adjusted your tax-free allowance so you will only pay tax on the amount you actually receive. You don’t pay National Insurance contributions when you reach State Pension age so your employer(s) or pension provider(s) should not take National Insurance contributions from you. For more information go to  www.gov.uk/tax-national-insurance-after-state-pension-age/stopping-paying-national-insurance
State Pension present, not Annual amount	State Pension	This income is taxable but tax is not taken off the payments before they are paid to you.  We use your tax-free allowance against your pension so you pay tax on this. We have reduced your tax-free amount by the estimated amount of pension we think you will receive this year. You don’t pay National Insurance contributions when you reach State Pension age so your employer(s) or pension provider(s) should not take National Insurance contributions from you. For more information go to  www.gov.uk/tax-national-insurance-after-state-pension-age/stopping-paying-national-insurance
State Benefits present	State Benefits. Note: Where State Pension and State Benefits are received in the same year the P2 will show separate amounts but IABD summary will show the total amount	This income is taxable but tax is not taken off the payments before they are paid to you.  We use your tax-free allowance against your benefit so you pay tax on this. We have reduced your tax-free amount by the estimated amount of benefits we think you will receive this year.
When allowance allocated against a source that has ceased	Income Now Ended	There is a difference between your total tax-free amount for the year and the amount allocated to your current employment(s)/pension(s) income. This difference is the amount that was allocated to employment(s) that have ceased this year and are therefore not displayed on this form.