P2 Tax Code Notice Decoder

What HMRC's Dynamic Coding does

From April 2026, HMRC's Dynamic Coding system reacts in near real-time to RTI submissions from your employer. If they think you're going to under- or over-pay tax, they push out a new tax code during the tax year rather than waiting until April. You'll get a P2 explaining the change.

The good: smoother in-year reconciliation, fewer P800s in summer.

The bad: more frequent code changes, more confused workers, and HMRC's algorithm sometimes mis-classifies one-off payments (bonuses, redundancy) as recurring.

What's on a P2 letter

1. Your old code and your new code: and the date the new code starts.
2. Your personal allowance: usually £12,570 unless you're over £100k or have other adjustments.
3. "Other adjustments": the part HMRC is varying. Could be company-car benefit, untaxed interest, underpayment from a prior year being recovered, or marriage allowance transferred in/out.
4. The numerical breakdown: how the personal allowance + adjustments combine to give your code number.
5. Suffix letter explanation: what L, M, N, T, K means in your case.

When P2s are wrong

• • HMRC assume a one-off bonus repeats every month → tax code drops too far
• • Company car benefit calculated from old P11D: you've changed cars or returned the car
• • Multiple employments and HMRC have allocated personal allowance wrongly between them
• • Untaxed interest projection inflated (HMRC assumes 4% on a balance you've spent)
• • Marriage Allowance applied without your consent: or removed when you didn't expect

How to challenge a P2

1. Sign in to your HMRC personal tax account: you can update most assumptions yourself in 5 minutes.
2. Phone HMRC on 0300 200 3300 if it's complex.
3. If a benefit (company car, medical insurance) has changed, your employer should be notifying HMRC: chase them.
4. For a formal dispute, the PayslipIQ Pro Report (£19) gives you a templated letter.

Disclaimer: PayslipIQ provides educational guidance only. Tax code changes are individual; always verify against your HMRC personal tax account before making decisions.