Tax Code SD3 Explained

What does SD3 mean?

SD3 instructs payroll to deduct Scottish income tax at the advanced rate of 45% on every pound from this source. The advanced rate was introduced for 2024/25 to apply between £75,000 and £125,140 for Scottish taxpayers. SD3 is therefore most often seen as a secondary-income code for Scottish higher earners whose main role consumes the lower bands.

Breakdown of the code

• S

  S

  Scottish prefix.

• D3

  D3

  Deduct at Scottish advanced rate - flat 45%, 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 SD3?

• 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 SD3 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 SD3 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.