Tax Code SD2 Explained

What does SD2 mean?

SD2 deducts Scottish income tax at the top rate of 48% on every pound from this source, with no personal allowance and no lower bands. It applies to Scottish taxpayers whose primary income exceeds £125,140 and who have a secondary PAYE source (a directorship, second pension, etc.). Holyrood introduced the top rate in 2024/25 and held it at 48% for 2026/27. National Insurance continues at the rUK rates.

Breakdown of the code

• S

  S

  Scottish prefix.

• D2

  D2

  Deduct at Scottish top rate - flat 48%, no allowance.

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 SD2?

• 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 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.