CD1 is the Welsh equivalent of D1. It applies 45% to all income from this source — used when main income already falls in the additional rate band for Welsh taxpayers.
Forty-five per cent. Nearly half of every pound earned from this income source goes directly to HMRC when you are on the CD1 tax code. It is the most aggressive flat-rate code in the Welsh PAYE system, reserved for additional rate taxpayers living in Wales who have a second income source. If CD1 appears on your payslip, your combined income from all sources exceeds £125,140, you have already lost your entire Personal Allowance, and you are classified as a Welsh taxpayer.
CD1 is uncommon. It applies only to Welsh taxpayers whose total income from all sources exceeds £125,140, the point at which the Personal Allowance is fully eroded and the additional rate begins.
High earners in Wales with a second job. A director living in Newport earning £150,000 from their main company takes a £30,000 non-executive role at a second firm. The main job carries a C0T code (no Personal Allowance, because it has been tapered away). The second job carries CD1, taxing every pound at 45%.
Multiple pension sources for very high-earning Welsh retirees. A retired senior executive living in Monmouthshire with a final salary pension of £140,000 plus a personal pension of £20,000 may find CD1 applied to the personal pension.
Investment income received through PAYE. Some investment managers living in Wales receive carried interest or performance fees through PAYE. If their base employment already exceeds £125,140, the additional income is coded CD1.
HMRC uses three flat-rate Welsh codes for second income sources. The one you receive depends entirely on your total income.
| Code | Tax rate | Personal Allowance | Total income range |
|---|---|---|---|
| CBR | 20% | None applied | Under £50,270 (basic rate) |
| CD0 | 40% | None applied | £50,270 to £125,140 (higher rate) |
| CD1 | 45% | None applied | Over £125,140 (additional rate) |
The logic is simple. Your primary income source receives your Personal Allowance (if any remains after tapering) and benefits from the graduated rate bands. Your second income source gets whichever flat-rate code matches the band your total income falls into.
If your total income is exactly £125,140 or slightly above, some of your second income may straddle the boundary between 40% and 45%. In theory, HMRC should split the coding. In practice, they often apply CD1 to the entire second income and reconcile via a P800 after the tax year.
CD1 exists partly because of the Personal Allowance taper, one of the most punishing features of the UK tax system. The taper works identically in Wales, England, Scotland, and Northern Ireland because the Personal Allowance is set by Westminster.
Once your total income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 of income above that threshold. This creates an effective marginal rate of 60% on income between £100,000 and £125,140: 40% income tax plus the lost allowance (which is taxed at 40%, creating an additional 20% effective charge).
At £125,140, the Personal Allowance is fully gone. From that point, the additional rate of 45% applies to income above £125,140. Paradoxically, the effective rate drops from 60% (in the taper zone) to 45% once you pass £125,140.
| Income band | Marginal tax rate | What is happening |
|---|---|---|
| £0 to £12,570 | 0% | Personal Allowance |
| £12,571 to £50,270 | 20% | Welsh basic rate |
| £50,271 to £100,000 | 40% | Welsh higher rate |
| £100,001 to £125,140 | 60% effective | Welsh higher rate + PA taper |
| Over £125,140 | 45% | Welsh additional rate (PA gone) |
Elen is a finance director living in Cardiff earning £140,000 from her main role. She takes a board advisory position at a second company paying £25,000.
Main job (C0T code, no Personal Allowance):
| Band | Amount | Rate | Tax |
|---|---|---|---|
| Basic rate (£0-£37,700) | £37,700 | 20% | £7,540 |
| Higher rate (£37,701-£100,000) | £62,300 | 40% | £24,920 |
| Taper zone (£100,001-£125,140) | £25,140 | 40% (+ PA loss) | £10,056 |
| Additional rate (£125,141-£140,000) | £14,860 | 45% | £6,687 |
| Total tax on main job | £49,203 |
Note: The C0T code means no Personal Allowance is applied. The bands above show the effective calculation across Elen's entire main income.
Advisory role (CD1 code):
| Item | Amount |
|---|---|
| Gross advisory income | £25,000 |
| Tax at 45% | £11,250 |
Total tax across both roles: £49,203 + £11,250 = £60,453 on total income of £165,000. Effective rate: 36.6%.
The CD1 code is correct here because Elen's entire advisory income falls above £125,140. She pays exactly the same as someone in England with a D1 code, since Welsh additional rates match UK rates for 2025/26.
At the additional rate, tax planning becomes genuinely valuable. Several strategies can reduce your effective rate. These work identically for Welsh and English taxpayers.
Pension contributions. Every pound contributed to a pension reduces your taxable income by one pound. A £20,000 pension contribution for a CD1 taxpayer saves £9,000 in income tax (45%) plus potentially restores some Personal Allowance if it brings total income back below £125,140.
Salary sacrifice. Exchanging gross salary for employer pension contributions reduces both your income tax and National Insurance liability. An additional rate taxpayer sacrificing £10,000 saves £4,500 in tax plus £200 in employee NI (2% above the Upper Earnings Limit).
Gift Aid donations. Charitable donations under Gift Aid extend your basic rate band. A £10,000 donation extends the basic rate band by £12,500 (grossed up), meaning more of your income is taxed at 20% instead of 45%.
Spreading income across tax years. If you have control over when you receive income (for example, as a company director choosing when to take a bonus), timing payments across two tax years can reduce the peak rate.
CD1 is wrong if your total income from all sources does not exceed £125,140. This can happen if:
If CD1 is incorrect, you are overpaying by 5% compared to CD0 (which would be 40%) or by 25% compared to CBR (which would be 20%) on every pound. On £25,000 of second income, the difference between CD1 and CD0 is £1,250 per year. The difference between CD1 and CBR is £6,250.
Fix it by updating your income estimate on your Personal Tax Account at gov.uk or calling HMRC on 0300 200 3300.
If you earn enough to be on CD1, you almost certainly need to file a Self Assessment return. HMRC requires Self Assessment from anyone with:
Filing Self Assessment does not mean you pay more tax. It is a reconciliation: HMRC compares what was deducted through PAYE (via CD0, CD1, and other codes) against what you actually owe. If PAYE over-collected, you get a refund. If it under-collected, you pay the difference.
The Self Assessment deadline is 31 January following the end of the tax year. For 2025/26, that means 31 January 2027.
Related tax codes: Welsh tax codes | CD0 tax code | D1 tax code
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