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Virtually everyone in the UK is entitled to a personal allowance if they are resident in the UK which entitles them to tax free income, the amount of that tax free income being dependent on the size of the personal allowance according to the specific circumstances. Earnings above the tax free allowance are subject to the basic rate tax. The basic tax rate personal allowance was £5435 from 6 April 2008 and increased by £600 to £6,035 which effect from the first pay date after 7 September 2008. The original personal allowance tax code 543L being increased to new tax code 603L reflecting these changes to calculate tax at the new rate from 7 September 2008..Basic rate tax for 2008 is 20 percent. For earnings above the higher income threshold which is £34.800 the basic rate tax increases to 40 per cent.The personal allowance of people over 65 and up to 74 is £9,030 which is reduced if income exceeds £21,800 and people over 75 receive a personal allowance of £9,180 also reduced when income exceeds the £21,800 income threshold. The rate of tax allowance reduction is £1 for every £2 above the income threshold until the basic personal allowance is reached.The number in the UK tax code is known as the prefix while the letter following that number is known as the suffix. Each suffix letter in the tax codes explained as a different meaning.Letter L means eligible for the basic personal allowance and is also used for the emergency tax codes. Letter P is for people aged 65 to 74 and letter V for people aged 75 and over, while letter Y is also for people over 75 but who are eligible for the full personal allowance. A tax code with a suffix letter T indicates there may be issues that HMRC still need to review regarding the tax code and letter K indicates that the value of taxable benefits exceeds the personal allowance.Where untaxed incomes, such as benefits, are received by the employee exceed the personal allowance a K code is issued by HMRC. The number following the letter K indicates the amount of benefits multiplied by 10 that are to be taxed in addition to the gross earnings received. This is achieved by adding the K code number multiplied by 10 to the gross earnings of the employee for income tax purposes.Some Inland Revenue tax coding consists of just letters allowing the tax codes explained simply. The BR tax code means basic rate where the employee entire earnings are taxed at the basic tax rate. The BR tax code is often used when an employee has a second job and should also be applied by an employer who has not received a P45 or P46 for a new employee. The NT tax codes explained is that no tax is deducted from the employee so the basic rate tax does not apply..HMRC are responsible for issuing tax codes and determine the Inland Revenue tax code by giving everyone the personal allowance, deducting any earnings where tax remains unpaid from the previous year and dividing the result by 10. Variations to this calculation are when other factors affect the tax code.An emergency tax code is issued to calculate tax when the new tax code is not immediately available. That can occur when the employee does not have a P45 or completes a P46. The emergency tax code 543L is replaced with the new tax code 603L from 7 September 2008 which is the basic tax allowance but is also applied on a week one or month one basis. A week one or month one basis means the employer will calculate tax to be deducted for each pay period and not on a cumulative basis which in effect prevents tax refunds until a confirmed tax code is received to replace the emergency tax code..It is important for employers to use the correct UK tax code which is stated on the P45 an employee presents to the new employer when starting employment to deduct the correct rate of tax. If the new employee does not have a P45 for the current financial year then the employer should request the employee complete a P46. The P46 is sent to HMRC who then review the tax coding and issue an appropriate tax code for the employer to use.The personal allowance usually changes each new tax year and the old Inland Revenue tax codes from the previous year can be used for the first few weeks of the year and replaced with the new tax code in week 7. The rate of tax deducted if the previous year personal tax allowance has been increased is common and the employee receives a tax refund when the new tax code is applied.When the new tax code is known from the start of the new tax year the tax coding can be applied from week one and as the correct tax has been deducted no refund is due.