Each individual’s PAYE code determines how their employment income is taxed. The PAYE code normally includes a tax free element to make use of an individual’s personal allowance if they are entitled to one. If the code isn’t correct it can result in under- or over-payments of tax.
The basic PAYE code for the 2023-24 tax year, which runs from 6 April 2023 to 5 April 2024, is 1257L and incorporates a tax-free personal allowance of £12,570. HMRC do not normally send out a notification if you are on the basic PAYE code.
However, if your tax code is different to the basic code of 1257L, then you should have received a ‘PAYE Coding Notice’ (form P2) from HMRC. This notice is sent to both you and your employer and/or pension provider so that they are notified of the PAYE code that they need to operate for you. You can also check your PAYE code via your personal tax account with HMRC here.
The PAYE Coding Notice will outline how your tax code was calculated and specifically what adjustments were made to the basic PAYE code. Adjustments can incorporate any untaxed company benefits you receive as these are deemed ‘benefits-in-kind’ which are taxable at your marginal rate of tax, any previous year tax underpayments, receipt of any other taxable income such as interest or dividends and the receipt of any taxable state benefits, as well as other adjustments specific to your circumstances.
It is important to check the PAYE Coding Notice carefully to ensure that the adjustments made by HMRC are correct and valid. If you don’t agree with or don’t understand the adjustments made it is essential that you call the HMRC Taxes Helpline on 0300 200 3300 or by updating your expected income for the tax year from within your Personal Tax Account as per the guidance here. HMRC’s adjustments are normally based on information from the prior tax year; if those circumstances are no longer applicable to you then HMRC need to be notified. If an amendment is made, HMRC will send both you and your employer or pension provider a revised Coding Notice.
Finally, now that you have made sure that the PAYE Coding Notice is correct, the next step is ensuring that your payslip from April 2023 onwards reflects this code as it is not unknown for employers to make a mistake in entering PAYE codes or for them not to have received the latest Coding Notice from HMRC. If there are any discrepancies in the code displayed on your payslip this needs to be raised with your employer.