Why Is My Tax Code SD0?

If you are wondering why you’ve been assigned the SD0 tax code, you will find the answer to your question in the following blog post where we will not only discuss the SD0 tax code and its application in specific but also take a general overview of how tax codes are calculated and applied under the PAYE system.

Why Is My Tax Code SD0?

Some of the reasons why your tax code is SD0 include the following:

• you live in and are employed in Scotland
• you have recently moved to Scotland
• you’ve lived the majority of the previous tax term living in Scotland (and a small part of it elsewhere in the UK)
• your main residence is in Scotland (you may have a secondary residence elsewhere in the UK)
• you don not have a home elsewhere in the UK and live regularly in Scotland

The SD0 tax code is a Scottish tax code and the equivalent of the D0 tax code used in England and Northern Ireland. The SD0 tax code indicates that your income or pension must be between £25,689 and £43,662 and all of your income or pension will be taxed at the intermediate rate of 21% according to the Scottish taxation law and system. 

It is highly likely that you’ve been assigned the SD0 tax code if you have two jobs. Your first job would have a different tax code while the SD0 tax code is being assigned to your second job if you have used all of your Personal Allowance (amounting to £12,570 for the 2022-23 tax year) for your first job.

Tax bands in Scotland can be classified as follows according to the Scottish income tax rates for 2022-23:

The Scottish Government has set their own income tax rates since 6 April 2016 and the SD0 tax code is part of that system. Scottish income tax codes are easily recognisable with the “S” prefix and apply to all taxable income including wages and pensions.

The Scottish income tax applies to incomes from the following sources:

• employment income
• self-employment profits from sole trades and partnerships
• rental profits
• pension income
• taxable benefits

How Are Tax Codes Calculated In Scotland?

Scottish tax codes are calculated in the same way as the rest of the UK. They are worked out by the HMRC under the following process:

• First, your tax allowances are calculated under the PAYE system. This means adding your Personal Allowance to any other allowances that you may claim (such as Marriage Allowance or Blind Person’s Allowance).
• Then, your deductions are calculated based on your taxable income. This includes your earnings from a salary, rental income, wages from part-time work or certain state benefits.
• At the final stage, your deductions are subtracted from your tax allowances. The remaining amount is your pre-tax income on which a tax code is assigned.

This tax code can easily be found in the following documents and should be the same across all of them:

• Payslip
• P45 form
• P60
• PAYE coding notice
• Pension advice slip
• HMRC website

What Are The List Of Tax Codes In Scotland?

If you live in Scotland, your tax codes will read as follows: 

• when your income or pension is taxed using the rates in Scotland your tax code will be S
• for individuals whose Personal Allowance has been used up, or those who have started a new job and their employer does not have all the details required to assign a tax code, their tax code will S0
• if your entire income or pension is taxed at the basic rate your tax code will be SBR
• if your entire income or pension is taxed at the intermediate rate your tax code will be SD0
• if your entire income or pension is taxed at the higher rate your tax code will be SD1
• if your entire income or pension is taxed at the top rate your tax code will be SD2

Conclusion:

The above discussion helps to conclude that if a taxpayer has been assigned the SD0 tax code under the PAYE system, it clearly indicates that they are being taxed under the Scottish taxation system. The SD0 tax code is applied in Scotland on the same basis as the D0 tax code applies to taxpayers in England and Northern Ireland; however, there is a difference in Scottish tax bands and applicable income tax rates.

References:

Income Tax in Scotland: Who pays – GOV.UK

Income Tax rates and Personal Allowances – mygov.scot

PAYE11025 – Coding: codes: how they are used and calculated: P2 notes for codes with no allowances or deductions – HMRC internal manual – GOV.UK