New PAYE Forms to Explain Tax Codes

New Pay-As-You-Earn (PAYE) tax coding notices are being sent out to British employees to help them better understand their tax codes.

Tax codes are used to work out how much employees can earn before paying tax. But one in three people in Britain are using the wrong code.

HM Revenue & Customs (HMRC) is now sending over 20 million taxpayers the new P2 coding notice forms over the coming months to explain how individual tax codes are calculated.

Amanda Fetherston-Smith, better guidance programme communications manager, HMRC, said: "The new form shows much more clearly what reduces the tax free allowance and contains plain English explanations of coding components in the same document, instead of referring customers to a separate 20-page booklet.

"We believe that this will make things much easier for our customers, who will receive information in a more user-friendly format and be able to quickly establish whether their circumstances are accurately reflected."

But some experts argue that the new forms could mean that people miss out on allowances and exemptions that they are entitled to.

Bernard Oster, managing director of Tax Watchdog, said: "The new style of tax code will be much easier to understand.

"However, the flip-side of this is that without a booklet many people will no longer be made aware of additional expenses and allowances that they may be able to claim, such as job expenses and professional subscriptions."

Mr Oster advised people who are unsure about allowances and exemption to seek professional advice.