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Best Steps to Apply the NT Tax Code for Non-UK Residents in 2023

The NT Tax Code frequently captures the attention of non-UK residents, prompting the question: what exactly is it?

It distinguishes itself as a unique identifier within the UK tax system. Historically, authorities rolled out the NT Tax Code to address the needs of a specific group, mainly non-UK residents. When you see this tax code on your income, it essentially communicates that you have no tax obligations for that income in the UK.

But why might someone not pay tax on certain income? There are several reasons:

  • Bankruptcy: If someone declares bankruptcy but continues to receive employment or pension payments, the NT Tax Code may apply from the bankruptcy’s start date until the subsequent April.
  • Double Taxation Agreements: Residents of countries that have double taxation agreements with the UK might receive the NT Tax Code. This ensures they don’t pay taxes on the same income or assets in both their home country and the UK.
  • Statutory Exemptions: Some payments, like disability pensions or specific injury exemptions, aren’t classified as ‘pay’, thus exempting them from tax.
  • National Insurance Only Payments: In some situations, individuals might owe National Insurance without the applicability of PAYE. Employers report such cases accordingly.
  • Specific Professions: Both the Employment Income Manual and PAYE Manual detail what HMRC considers as taxable PAYE income.
  • Ministers of Religion: In certain circumstances, like for monks or nuns who have dedicated their pensions to their order, the NT Tax Code applies.
  • Entertainment Industry: The ‘7 Day Rule’ allows professionals in the film and TV industry to receive payments for short-term work (up to 6 days) without tax deductions. However, they still pay National Insurance.
NT Tax Code 1
In some cases, especially for specific categories like seafarers, there are dedicated forms like the  ‘Request for Seafarers’ NT Code‘.

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This article isn’t formal tax advice.

Importance of the NT Tax Code for Non-UK Residents

For non-UK residents, It brings forth multiple advantages. Primarily, it guarantees that they don’t pay tax on income that the UK government doesn’t consider taxable for them.

This is especially relevant for UK non-residents, as they often receive the NT Tax Code for some or all of their UK income. The intricacies of UK non-residency tax can be complex, with rules fluctuating based on one’s residence and other factors.

However, it’s essential to dispel some myths surrounding it. While some view it as a loophole or too advantageous to be real, It’s primary purpose is to instill fairness in the taxation system for non-residents.

It’s not about evading taxes but ensuring that individuals pay the right amount based on their residency and income sources.

Lastly, even if you have it, you might still need to pay National Insurance. Most situations with the NT Tax Code still necessitate National Insurance payments, which employers confirm through Full Payment Submissions.

Eligibility Criteria for the NT Tax Code

Understanding your eligibility for it is paramount before considering its application. This tax code offers specific benefits to non-UK residents, but it’s essential to know the nuances of who qualifies and the documentation required.

Who qualifies for the NT Tax Code?

The NT Tax Code primarily caters to non-UK residents. However, the mere status of being a non-resident doesn’t automatically grant you this tax code. Several conditions and exceptions come into play:

  • Double Taxation Agreements (DTAs): One of the primary reasons someone might receive the NT Tax Code is due to Double Taxation Agreements. If you reside in a country that has a DTA with the UK, you might be eligible for the NT Tax Code. These agreements ensure that individuals don’t get taxed twice on the same income in two different countries.
  • UK-sourced Income: The NT Tax Code is often granted to individuals who receive income sourced from the UK but reside in a country with a DTA with the UK.
  • Specific Exemptions: There are certain statutory exemptions where the NT Tax Code applies. It’s crucial to check with HMRC’s guidelines or consult a tax professional to understand these in detail.
NT Tax Code
Applying for it can sometimes be a daunting task. One of the primary challenges applicants face is discrepancies in their NT Tax Code applications. 

Documents required for verification

Securing the NT Tax Code requires you to provide concrete proof of your claims:

  • Proof of Non-Residency: This is a fundamental requirement. Documents that can serve this purpose include overseas employment contracts, utility bills from your country of residence, or official letters confirming your overseas address.
  • Income Documentation: If you claim the NT Tax Code due to UK-sourced income, you need to provide evidence of this income. This could be in the form of payslips, bank statements showing the income deposits, or official letters from the source of the income.
  • Double Taxation Agreement Proof: If you’re claiming the NT Tax Code based on a DTA, you might need to provide documentation that proves you’re a resident in a country that has such an agreement with the UK.

Step-by-Step Guide to Applying for the NT Tax Code

Applying for the NT Tax Code involves a systematic process with HMRC. Let’s break down each step to ensure you have a clear understanding.

Registering with HM Revenue & Customs (HMRC)

The first step towards obtaining the NT Tax Code is registering with HMRC. The online registration process is straightforward and user-friendly.

For those who are more comfortable with traditional methods, HMRC also offers offline registration options. Whichever method you choose, ensure you have all the necessary details at hand.

Filling out the necessary forms

After registration, the next crucial step is completing the required forms. One of the primary forms associated with the NT Tax Code application is the P85 form, which is available on the HMRC website..

This form can be filled out online or printed and mailed. It’s essential to read the instructions carefully and provide accurate information. Any discrepancies can lead to delays or even rejection of your NT Tax Code application.

Additional documentation

In some cases, especially for specific categories like seafarers, there are dedicated forms like the  ‘Request for Seafarers’ NT Code‘. Always check if your profession or situation requires any additional documentation or forms.

Submission of the application

Once you’ve filled out the necessary forms and gathered all required documents, it’s time to submit your application. You can do this online through the HMRC portal or by post.

When sending by post, always use a tracked service to ensure your application reaches its destination. Remember to keep a copy of everything you send for your records. This will be crucial if there are any queries or if you need to reference any information in the future.

Awaiting HMRC’s response

After submitting your application for the NT Tax Code, patience is key. HMRC typically responds within a few weeks.

However, during peak times or due to other unforeseen circumstances, there might be delays. If you haven’t received any communication after a reasonable period, it’s a good idea to contact HMRC directly. They have dedicated helplines for queries, with specific numbers for overseas callers.

Potential Issues and Their Solutions

Every process has its challenges, and the it application is no exception.

Common challenges faced by applicants

Applying for it can sometimes be a daunting task. One of the primary challenges applicants face is discrepancies in their NT Tax Code applications. 

These discrepancies can arise due to various reasons, such as incorrect documentation, misunderstanding the criteria, or even minor clerical errors. Addressing these discrepancies promptly is crucial.

If HMRC rejects your application, it’s essential to understand the reasons behind the rejection. Often, the rejection might be due to not meeting specific criteria or not providing the necessary documentation. 

In such cases, consider reapplying after rectifying the issues or seeking professional advice.

Another challenge is the misconception about it. Many believe that the NT Tax Code implies that there is no tax due on the withdrawal. 

However, It simply indicates that HMRC has advised your employer or the trustee or pension provider not to deduct any tax from this income source. This distinction is vital to understand to avoid future complications.

Tips for a smooth application process

Ensuring a smooth NT Tax Code application process requires a bit of preparation and understanding. One of the primary tips is to keep all your documents organized. Proper documentation plays a crucial role in the application process. 

For instance, the P85 form, which reveals how much you’ve earned and how much tax you’ve paid since April 6, is essential. This form can provide clarity on the code number your company has used.

Another tip is to familiarize yourself with the process. For example, if you wish for your withdrawal to be paid to you in gross, there are certain steps you must follow with HMRC. Understanding these steps can help streamline the process.

Lastly, consulting with tax professionals familiar with it can be beneficial. They can provide insights, help with documentation, and even assist in understanding the nuances of the NT Tax Code.

Benefits of Successfully Obtaining the NT Tax Code

Financial advantages for non-UK residents

It stands as a significant boon for non-UK residents. One of its primary benefits is the tax savings potential.

By ensuring that you’re not taxed twice on the same income, It helps you retain more of your hard-earned money. This is especially beneficial for those who reside in a country that has a double taxation agreement with the UK.

Two common scenarios where the NT Tax Code proves invaluable include:

  1. A UK expatriate who, while previously employed by a UK company and taxed via the PAYE scheme, continues on a UK payroll while living in a foreign country. Without the NT Tax Code, this individual would face taxation in the UK and then again in the foreign country when processing the local country’s tax return.
  2. A UK expatriate wishing to withdraw their UK pension, including a SIPP. Without the NT Tax Code, they would pay UK tax on the withdrawal.

Therefore, any individual with the NT Tax Code will not face taxation at the source in the UK. This saves them the hassle and time of trying to request a refund from HMRC for tax withheld at source incorrectly.

Peace of mind and legal compliance

Beyond the evident financial benefits, obtaining the NT Tax Code also offers peace of mind. Knowing that you’re adhering to UK tax laws provides a sense of security. 

With the NT Tax Code, you ensure that you’re making the correct tax payments, eliminating potential legal complications down the line.

Once you’ve been granted the NT Tax Code, HMRC will notify your employer or pension provider of the tax code change. Following this notification, there will be no UK tax deducted at the source. 

It’s worth noting that the typical processing time for HMRC to handle NT Tax Code forms ranges between six to eight weeks. However, in some cases, it might take longer, emphasizing the importance of applying as early as possible.

Lastly, while the NT Tax Code addresses taxation, it’s essential to remember that most situations with the NT Tax Code still require National Insurance payments. There are exceptions, but those delve into more specific circumstances not covered in this article.

NT Tax Code
Once you’ve filled out the necessary forms and gathered all required documents, it’s time to submit your application. You can do this online through the HMRC portal.

Frequently Asked Questions (FAQs) about the NT Tax Code

How often should I renew my NT Tax Code status?

You should review your NT Tax Code status annually to ensure continued eligibility. Regular checks ensure that you remain compliant with HMRC regulations and that your tax situation aligns with your current circumstances.

Can I switch back to a regular tax code after obtaining the NT Tax Code?

Absolutely. If your residency status changes or you no longer meet the criteria, you can revert to a regular tax code. The NT Tax Code is flexible in this regard, allowing for changes in personal circumstances.

What happens if I become a UK resident again?

If you transition back to being a UK resident, you’ll typically need to switch from the NT Tax Code to a regular tax code. This adjustment ensures that you pay the appropriate taxes based on your residency and income sources.

Why am I not paying any tax on this income with the NT Tax Code?

The NT Tax Code means no tax is due on specific income. HMRC instructs your employer not to deduct any tax from this income source.

You receive the NT Tax Code because you declare income in another way that HMRC has approved, such as self-employed income. The NT Tax Code can be issued on both a week 1/month 1 and a cumulative basis.

When is the NT Tax Code used?

The NT Tax Code applies in several distinct situations:

  • Bankruptcy: If you declare bankruptcy and still receive employment or pension payments, the NT Tax Code can apply from the bankruptcy’s start date until the subsequent April.
  • Double Taxation Agreements: If you reside in a country with a double taxation agreement with the UK, you might receive the NT Tax Code. This ensures you don’t pay tax on the same assets or income in both your residence country and the UK.
  • Statutory Exemptions: Some payments, like disability pensions or specific injury exemptions, aren’t defined as ‘pay’, making them eligible for the NT Tax Code.
  • National Insurance only payments: In some situations, you might only need to pay National Insurance, even if PAYE doesn’t apply to you. Your employer will report this on the FPS.
  • Specific Professions: The Employment Income Manual and PAYE Manual detail what HMRC considers taxable PAYE income.
  • Ministers of Religion: In certain situations, like if you’re a monk or nun and have given your pension to your order, the NT Tax Code applies.
  • Entertainment Industry: The ‘7 Day Rule’ allows those in the film and TV industry to receive payments for work lasting up to 6 days without tax deductions. However, National Insurance payments remain standard.
NT Tax Code
Ensuring a smooth NT Tax Code application process requires a bit of preparation and understanding. One of the primary tips is to keep all your documents organized.

Do I still pay National Insurance with the NT Tax Code?

Yes, in most situations where the NT Tax Code applies, you still need to make National Insurance payments. Your employer confirms these through Full Payment Submissions.

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