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. SD1 deducts the Scottish higher rate of 42% from every pound from this source, with no allowance and no lower band — HMRC's instruction is to multiply the whole pay by 0.42. It is not the Scottish equivalent of D1's 45%: on the Scottish ladder the advanced rate (SD2) and the top rate (SD3) sit above it. SD1 is correct for a secondary income where your main job has already used everything up to the Scottish higher-rate threshold, and it becomes punitive the moment that main income falls away — after a redundancy or a significant pay cut — because the deduction does not adjust itself.

How Scottish S-prefix tax codes work

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 the Scottish HIGHER rate - flat 42%, no allowance. Not 45%: that is what D1 means without the S.

Worked example

Scottish directorship paying £30,000 on top of a higher-band main salary on £30,000 (paid monthly).

£30,000 × 42% = £12,600/year. Correct because the primary salary has already used every band up to the Scottish higher rate.

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.