D1 means 45% additional rate tax on all income from this source, with no personal allowance. It applies when your total income exceeds £125,140.
Forty-five per cent. Nearly half of every pound earned from this income source goes directly to HMRC when you are on the D1 tax code. It is the most aggressive flat-rate code in the PAYE system, reserved for additional rate taxpayers with a second income source. If D1 appears on your payslip, your combined income from all sources exceeds £125,140 and you have already lost your entire Personal Allowance.
D1 is uncommon. It applies only to individuals 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 with a second job. A director earning £150,000 from their main company takes a £30,000 non-executive role at a second firm. The main job carries a 0T code (no Personal Allowance, because it has been tapered away). The second job carries D1, taxing every pound at 45%.
Multiple pension sources for very high earners. A retired senior executive with a final salary pension of £140,000 plus a personal pension of £20,000 may find D1 applied to the personal pension.
Investment income received through PAYE. Some investment managers receive carried interest or performance fees through PAYE. If their base employment already exceeds £125,140, the additional income is coded D1.
HMRC uses three flat-rate codes for second income sources. The one you receive depends entirely on your total income.
| Code | Tax rate | Personal Allowance | Total income range |
|---|---|---|---|
| BR | 20% | None applied | Under £50,270 (basic rate) |
| D0 | 40% | None applied | £50,270 to £125,140 (higher rate) |
| D1 | 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 D1 to the entire second income and reconcile via a P800 after the tax year.
D1 exists partly because of the Personal Allowance taper, one of the most punishing features of the UK tax system.
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% | Basic rate |
| £50,271 to £100,000 | 40% | Higher rate |
| £100,001 to £125,140 | 60% effective | Higher rate + PA taper |
| Over £125,140 | 45% | Additional rate (PA fully gone) |
Rebecca is a finance director earning £140,000 from her main role. She takes a board advisory position at a second company paying £25,000.
Main job (0T 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 0T code means no Personal Allowance is applied. The bands above show the effective calculation across Rebecca's entire main income.
Advisory role (D1 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 D1 code is correct here because Rebecca's entire advisory income falls above £125,140.
If you earn enough to be on D1, 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 D0, D1, 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.
At the additional rate, tax planning becomes genuinely valuable. Several strategies can reduce your effective rate.
Pension contributions. Every pound contributed to a pension reduces your taxable income by one pound. A £20,000 pension contribution for a D1 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.
D1 is wrong if your total income from all sources does not exceed £125,140. This can happen if:
If D1 is incorrect, you are overpaying by 5% compared to D0 (which would be 40%) or by 25% compared to BR (which would be 20%) on every pound. On £25,000 of second income, the difference between D1 and D0 is £1,250 per year. The difference between D1 and BR 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 are self-employed alongside your D1 PAYE income, Making Tax Digital may apply to you from April 2026 (if self-employment income exceeds £50,000) or April 2027 (if it exceeds £30,000). Your quarterly MTD submissions cover only the self-employment portion. PAYE income, including anything coded D1, is reported separately by your employer.
At Self Assessment, HMRC combines all sources. The interaction between D1 PAYE deductions and your self-employment profits determines whether you owe additional tax or receive a refund.
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