Tax Code SD1 Explained

What does SD1 mean?

SD1 marks you as a Scottish taxpayer for the 2026/27 year. The personal-allowance logic is identical to the rUK version of D1 - the number still represents your tax-free amount, the letter still describes any allowance adjustment - but Holyrood (not Westminster) sets the rates above the allowance. The 2026/27 Scottish bands are: 19% starter rate on the first slice above your allowance, 20% basic rate, 21% intermediate rate, 42% higher rate, 45% advanced rate and 48% top rate above £125,140. HMRC determines residency from your main home, not your employer's location, so a Scotland-based employee at a London-headquartered firm will still be issued an S code. National Insurance is unaffected and continues to use UK-wide thresholds. D1 is the additional-rate counterpart to BR and D0: it tells the employer or pension provider to deduct income tax at the additional rate of 45% on every pound of pay from this source, with no personal allowance and no basic- or higher-rate bands applied. It is reserved for taxpayers whose primary income has already consumed both the personal allowance and the entire £125,140 of basic and higher-rate bands, which in practice means people earning £125,140 or more from a main job who also have a second source of taxable income. Typical examples include senior executives with a non-executive directorship, partners with a secondary salaried role, or pension drawdown income paid alongside a high salary. D1 becomes a problem when HMRC has overestimated your main income - for instance after a redundancy, a major salary cut, or the removal of a one-off bonus from prior assumptions. In that case you will see a deduction of 45% on a secondary income that would otherwise have been taxed at 20% or 40%, leading to a sizeable overpayment.

Breakdown of the code

• S

  S

  Scottish prefix - you live in Scotland and pay Scottish income-tax rates (19% / 20% / 21% / 42% / 45% / 48%).

• D1

  Letter pair

  Deduct at additional rate - flat 45% with no allowance, used for income on top of additional-rate primary pay.

Worked example

Senior executive with a £30,000 secondary directorship on top of £200k base on £30,000 (paid monthly).

£30,000 × 45% = £13,500/year - correct only when primary income exceeds £125,140.

Who should be on SD1?

• Scottish residents whose main home address is in Scotland
• Additional-rate taxpayers (>£125,140 primary income) with a secondary PAYE source
• Directors with multiple board fees paid above the additional-rate threshold
• High-earning pension drawdown alongside an additional-rate salary

Common problems

• A salary cut or redundancy means your primary income is now in the basic- or higher-rate band - D1 becomes punitive overnight.
• A one-off bonus inflated HMRC's estimate of your main income.
• D1 is occasionally applied in error after a coding review for a previous-year underpayment.

What to do if SD1 looks wrong

1. Sign in to your HMRC personal tax account at gov.uk/personal-tax-account and open the latest P2 (Notice of Coding) - it itemises every adjustment.
2. Compare the code on your most recent payslip with the code HMRC has on file; employers occasionally apply an old code if a P9 was missed.
3. Confirm your employer received your P45, or that you completed a starter checklist if you joined mid-year.
4. Check whether benefits-in-kind such as a company car, fuel, or medical insurance have changed and ask payroll to file an updated P11D.
5. Call HMRC on 0300 200 3300 (Mon-Fri, 8am-6pm) with your National Insurance number if the online tools cannot resolve it.
6. If you have overpaid, HMRC normally refunds via your next payslip once the code is corrected. For closed years request a P800 review.

If you should be on a different code…

Quick decision tree - when SD1 is the wrong fit, here is the most likely correct code.

• If you have a single PAYE job and no benefits-in-kind - you should be on 1257L.

  Standard personal allowance of £12,570 for England, Wales and NI.

• If you have moved out of Scotland - you should be on D1.

  All income from this source taxed at 45%, no personal allowance.