What is the purpose of a 'Tax Code'?

The purpose of a 'Tax Code' is primarily to determine the amount of tax to deduct from earnings. Tax codes typically provide specific guidance on the tax liabilities that apply to different types of income and various revenue-generating activities. When a business generates income, the tax code outlines how much of that income is taxable and at what rate, which directly affects how much tax is withheld or owed.

Understanding tax codes is crucial for businesses as they need to ensure compliance with tax laws and regulations. The codes contain essential information that informs how various deductions, allowances, and taxable thresholds operate, allowing businesses to calculate their tax liabilities accurately.

Other options do not fit the specific role of a tax code. While reporting capital gains, calculating overall business profits, and defining investment portfolios are important aspects of financial reporting and tax obligations, they are not the primary purpose of a tax code itself. These elements may be informed by the tax code, but they serve different functions within the broader context of business finance and tax compliance.