Have you ever wondered what an NT tax code is and why you might have it? An NT tax code is a unique code that tells your employer not to deduct any Income Tax from your earnings for a specific job. It’s quite an unusual position to be in, and there are various reasons why you might have this code. For example, you could be a non-UK resident, reporting your income differently, or working in the film or TV industry. However, it’s important to remember that an NT tax code doesn’t exempt you from paying National Insurance Contributions. In this article, we will explore the ins and outs of NT tax codes and explain what to do if you think your tax code is incorrect. Plus, we’ll discuss how being on the wrong tax code could mean you’re paying the wrong amount of Income Tax and might be eligible for a tax rebate. So, let’s delve into the world of NT tax codes and discover what they mean in the realm of taxes.
What is an NT tax code?
A tax code is essentially a combination of numbers and letters that indicates to your employer how your earnings should be taxed. It is assigned to each Pay As You Earn (PAYE) job that you hold and is important to keep track of. Whenever your tax code changes, the Income Tax you pay will be altered accordingly by HMRC.
If you have been given an NT tax code, you are in quite an unusual situation. The NT code actually means that you are not required to pay any Income Tax on your earnings from that specific job. However, it is important to note that having an NT tax code does not exempt you from paying National Insurance Contributions (NICs) from your earnings.
There are several reasons why you might have been assigned an NT tax code. For instance, if you are a non-UK resident for tax purposes and reside in a country with a “double taxation” agreement with the UK, you may be assigned a tax code NT. Additionally, if you report your income to HMRC in another way, such as along with self-employment earnings, you may be given an NT tax code. People working in the film or TV industry are sometimes allowed to be paid for up to 6 days of work without having to pay tax, which may result in an NT tax code. Lastly, if you are working while bankrupt, you may be given an NT tax code on a temporary basis.
A common situation where NT tax code is applied is when a UK employee is assigned overseas. NT codes are typically issued to payroll when an employee is sent on an assignment outside of the UK and is no longer a UK tax resident. This code allows employers to not operate PAYE on employment income related to non-UK work duties. However, it’s important to note that this exemption does not apply to National Insurance contributions, which must be reviewed separately. It is crucial to submit the relevant forms (P85) to HMRC prior to the employee’s assignment start date to ensure the NT code takes effect from the departure date and prevent double taxation. While HMRC advises that a letter with the relevant information suffices, in some cases, they still request the completion of a departure form P85.
Implications of an NT tax code
When you have an tax code NT, you are exempt from paying Income Tax on the earnings from that specific job. However, it is important to note that you may still have to pay National Insurance Contributions (NICs) from your earnings. NICs provide benefits such as the State Pension, so it is crucial to continue making these contributions even if you have an NT tax code.
Example of PAYE on tax code NT
A normal tax code, such as 1257L, allows you to have a tax-free Personal Allowance before you start paying tax at the basic rate. However, an NT operates differently. It instructs your employer not to deduct any Income Tax from your pay.
How to change my tax code
In most cases, HMRC will automatically change your tax code as your circumstances change. However, there may be instances where you are placed on the wrong tax code, and it is crucial to rectify it promptly. Read our article on how to change a wrong tax code for a step by step guide.