Definition
Under the PAYE system of taxing income, tax codes are allocated annually to employees. These codes enable the employer to deduct tax at the correct rate from salaries or wages on a monthly (or weekly) basis for remittance to the Inland Revenue. Most codes depict a number followed by a letter. The number refers to the amount of salary payable free of tax (for example if a person's code is 45OH, the tax free allowance will be between £4,500 and £4,509 that is, the first three numbers of the net allowances form the number of the code). The letter denotes that various personal and other allowances are included.