Tax Code SD2 Explained

What does SD2 mean?

SD2 instructs payroll to deduct Scottish income tax at the advanced rate of 45% on every pound from this source, with no personal allowance and no lower bands: HMRC's instruction for the code is to multiply the whole pay by 0.45. The advanced rate was introduced for 2024/25 and applies to Scottish income between £75,000 and £125,140. SD2 is therefore most often seen as a secondary-income code for a Scottish earner whose main role has already used every band up to the advanced threshold but has not reached the top rate - that one is SD3, at 48%. National Insurance continues at the rUK rates.

How Scottish S-prefix tax codes work

Breakdown of the code

• S

  S

  Scottish prefix.

• D2

  D2

  Deduct at Scottish advanced rate - flat 45%, no allowance.

Worked example

Scottish director on a £30,000 second salary alongside an advanced-rate main role on £30,000 (paid monthly).

£30,000 × 45% = £13,500/year - correct while primary income sits in the Scottish advanced band.

Who should be on SD2?

• Scottish residents whose main home address is in Scotland
• Scottish taxpayers whose primary income is in the advanced band (£75,000 to £125,140) with a secondary PAYE source
• Directors with a second board fee paid above the Scottish advanced threshold
• Pension drawdown taken alongside an advanced-rate Scottish salary

Common problems

• Confused with SD3. SD2 is the advanced rate (45%) and SD3 is the top rate (48%) - HMRC's Tax Tables B-D 2026 to 2027 and PAYE Manual PAYE11025 both assign them that way round.
• A salary cut or redundancy has moved your primary income below the advanced threshold - a flat-rate code does not adjust itself.
• HMRC overestimated your main-job earnings from prior-year figures.

What to do if SD2 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 SD2 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.