Tax Code NT Explained

The only cases where HMRC issues NT

HMRC’s PAYE Manual tells its staff to use NT only in the situations it lists, and to record a reason on your file before issuing it. The categories are:

• Statutory exemptions – for example pensions paid for specified wounds and disabilities.
• Double taxation agreements – visiting teachers, foreign language assistants, students and others exempt under a tax treaty. HMRC expects to hold notes about the treaty claim. If it has none, its manual says it writes to you and allows 12 weeks for a reply, and removes NT if no reply arrives or the reason ends.
• Ministers of religion in certain circumstances, and nuns or monks who have signed their worldly goods, including pensions, over to their order.
• Bankruptcy – NT runs from the date of the bankruptcy order to the following 5 April, and normal allowances return the next year.
• People who pay tax on their main work through Self Assessment and have a small PAYE post as part of it, or whose pay is taxed as trading profits (for example some entertainers, and directors’ fees paid to partnerships).
• The entertainment industry’s seven-day rule – TV and film workers engaged for 6 days or less can be paid without tax deducted. National Insurance is still paid as normal.

NT and National Insurance-only jobs

NT only switches off Income Tax. HMRC’s manual describes “NI only” employments: the employer reports nil taxable pay and nil tax but still deducts National Insurance. HMRC’s employer guide gives musicians who are treated as self-employed as a typical example of who might have an NT code. NI is still worked out on the pay in the usual way.

Cumulative and non-cumulative NT

Since April 2010, HMRC can issue NT on either basis. On a cumulative basis, the employer’s instructions are to work out tax from total pay and tax since 6 April, so any tax already deducted that year is refunded. On a week 1 / month 1 basis, the instruction is to stop deducting from the date of the notice and make no refunds. HMRC’s system defaults NT to week 1 / month 1, so if you expect tax back, ask which basis your NT code was issued on.

Example: you’re paid £2,000 a month and taxed normally until HMRC agrees an NT code in month 5. A cumulative NT code refunds the tax taken in months 1 to 4 (about £762.00 on 1257L in England) on your next payday. A month 1 NT code only stops future deductions.

No S or C version

NT is the only code that never carries a Scottish S or Welsh C prefix. HMRC’s manual says it is used for all UK taxpayers regardless of where they live. If you see “SNT” or “CNT” on a payslip, that’s a payroll error worth querying.

NT doesn’t mean the income is tax-free

In several of the listed cases, NT only changes where the tax is paid. A minister of religion, an entertainer or a professional whose PAYE fee is part of a self-assessed business still declares the income on a tax return and pays the tax there. NT stops it being taxed twice. The cases that are genuinely exempt include the statutory exemptions and income covered by a tax treaty.

Example: a performer paid £1,500 for a three-day TV booking under the seven-day rule has no Income Tax deducted, but the £1,500 is still taxable income and is settled at the end of the year. If the rest of their income already uses their allowance, that is roughly £300 at the basic rate.

Checking an NT code

• Your payslip should show code NT and no Income Tax, while National Insurance may still be deducted.
• Your P60 for that job should show nil tax. Keep it with your Self Assessment records if the income is declared there.
• HMRC records a reason for every NT code. If you don’t know why you have one, ask HMRC what reason is on your record. A wrong NT code means a tax bill later.
• Treaty-based NT codes depend on continuing evidence. If HMRC writes asking for it and you don’t reply, the NT can be removed.