What Is the SBR Tax Code and How Does It Affect You?

Understanding tax codes is essential for managing your finances, especially if you work in Scotland and have multiple sources of income.

The SBR tax code (Scottish Basic Rate) is applied when all your earnings from a particular job or pension are taxed at the Scottish basic rate of 20%.

This can impact your take-home pay, especially if your personal allowance is allocated elsewhere. If you’re unsure whether your SBR tax code is correct or need to update it, knowing how it works is crucial.

In this guide, I will explain what the SBR tax code means, why it’s assigned, and how it affects you.

What Does the SBR Tax Code Mean?

The SBR tax code stands for Scottish Basic Rate and is applied to individuals with more than one source of income in Scotland.

It ensures that all earnings from a specific job or pension are taxed at the Scottish basic rate of 20%.

Key points to understand about the SBR tax code:

• It does not include a personal allowance, as this is usually applied to the primary source of income.
• It is typically assigned when a person has multiple jobs or pensions.
• It prevents income from being undertaxed by ensuring tax is deducted at the correct rate.

Since this tax code assumes that your personal allowance is already allocated to another source of income, every pound you earn under this code is subject to the basic rate of 20% taxation.

Why Are You Assigned the SBR Tax Code?

The SBR tax code is assigned by HMRC (Her Majesty’s Revenue and Customs) to individuals who have more than one income source in Scotland.

This tax code ensures that all income from a second job or pension is taxed at the Scottish basic rate of 20% without applying the personal allowance, as HMRC assumes the allowance is already used in the main source of income.

Common Reasons for Being Assigned the SBR Tax Code

1. You Have More Than One Job

If you work multiple jobs, HMRC usually assigns your personal allowance to your main job—the one where you earn the most.

Any additional job will be taxed at the basic rate, which is why the SBR tax code is applied. This prevents under-taxation and ensures the correct amount of tax is deducted.

2. You Receive a Workplace or Private Pension Alongside Employment

If you are receiving a workplace pension or a private pension while still working, your main job typically retains the personal allowance.

The pension income, considered secondary, is taxed at the basic rate under the SBR tax code.

3. Your Employer or Pension Provider Has Not Received Updated Tax Code Information

Employers and pension providers rely on HMRC for tax code information. If an updated tax code has not been issued, they may apply the SBR tax code as a precautionary measure.

This is common when starting a new job or receiving pension payments for the first time.

4. Your Earnings Do Not Qualify for a Personal Allowance

If your total income is high enough that your personal allowance is already fully utilised in another employment or pension, the SBR tax code ensures that any additional earnings are taxed correctly.

Understanding why you have been assigned this tax code allows you to verify whether it is correct or if an adjustment is needed.

How Does the SBR Tax Code Affect Your Take-Home Pay?

The SBR tax code directly impacts your take-home pay by ensuring that all income from a secondary job or pension is taxed at the Scottish basic rate of 20%.

Unlike the standard tax code (1257L), which applies a personal allowance to reduce taxable income, the SBR tax code does not provide any tax-free allowance.

This means that every pound earned under this code is subject to immediate taxation, which can lead to lower net earnings than expected.

Impact on Earnings

• If you have only one job, your income is typically taxed under a standard tax code like 1257L, allowing you to earn up to £12,570 tax-free before paying tax at 20%.
• If you have multiple jobs or a pension, your personal allowance is usually allocated to your main income source. The SBR tax code ensures that all income from your second job or pension is taxed at 20% without any tax-free portion.
• This tax code can result in higher deductions from your second job or pension, reducing the amount you take home each month.

Example of Take-Home Pay with the SBR Tax Code:

What If You Are Overpaying Tax?

If your personal allowance is not fully used in your main job, you might be overpaying tax under the SBR code. In such cases, you can contact HMRC to review and adjust your tax code, potentially leading to a tax refund.

Can You Change Your SBR Tax Code?

If you believe your tax code is incorrect, you can request a change through HMRC. Steps to do this include:

1. Check your PAYE coding notice: This document outlines how your tax code was calculated.
2. Log in to your HMRC Personal Tax Account: Here, you can review and update your tax code details.
3. Use the HMRC tax code checker: This tool helps determine if your tax code needs adjustment.
4. Contact HMRC: If your tax code is incorrect, call HMRC’s helpline (0300 200 3300) to request a review.
5. Inform your employer or pension provider: They cannot change the tax code, but they can apply any updated codes provided by HMRC.

What Should You Do If You Think Your Tax Code Is Wrong?

If you suspect that your tax code is incorrect, taking prompt action can help you avoid overpaying or underpaying tax. Steps you should take:

• Compare your tax code with HMRC’s guidelines: Check the HMRC website for standard tax codes and how they apply to different income situations.
• Review your payslip: Your tax code is listed on your monthly or weekly payslip, making it easy to spot any errors.
• Contact HMRC: If there are inconsistencies, you should speak to HMRC directly to verify your tax code.
• Provide accurate income details: Ensure that HMRC has up-to-date information about your employment and pension status.

In cases where you have overpaid tax, you can apply for a refund through HMRC. If you have underpaid tax, HMRC will typically adjust your tax code for the next financial year to recover the shortfall.

How Does the SBR Tax Code Compare to Other UK Tax Codes?

The SBR tax code differs from other tax codes used across the UK. Below is a comparison of commonly used tax codes:

Unlike the 1257L tax code, which allows taxpayers to benefit from a £12,570 personal allowance, the SBR tax code applies a flat 20% tax on all income from that specific source.

What Happens If You Overpay or Underpay Tax on SBR?

Overpaid Tax:

If you are placed on the SBR tax code incorrectly, you may overpay tax. In this case:

• HMRC will issue a refund automatically at the end of the tax year if they detect an overpayment.
• You can request an early review of your tax payments if you notice the mistake sooner.
• Refunds are typically processed via bank transfer or cheque.

Underpaid Tax:

If your tax code is too low and you have underpaid tax, HMRC may:

• Adjust your tax code in the following tax year to recover the unpaid amount gradually.
• Send a P800 tax calculation letter, detailing the amount owed and payment options.
• Allow you to pay in instalments if the amount is significant.

Keeping your tax details updated with HMRC helps prevent underpayments, which could lead to unexpected tax bills.

How Can You Avoid Issues with the SBR Tax Code?

Managing your tax code effectively can prevent unnecessary deductions and financial surprises. Here are some steps to avoid tax code issues:

• Regularly check your payslips: Ensure that your tax code remains correct throughout the year.
• Inform HMRC of change: If you start a new job, receive a pension, or experience a salary change, update HMRC immediately.
• Use the HMRC tax code checker: This online tool helps confirm if your assigned tax code is correct.
• Keep track of PAYE coding notices: These are official documents from HMRC explaining how your tax code is determined.
• Consult with an accountant if needed: For complex income situations, a tax professional can help ensure you are taxed correctly.

By staying informed and proactive, you can minimise tax code errors and ensure that you only pay the correct amount of tax.

Conclusion

The SBR tax code is used in Scotland when individuals have more than one job or pension, ensuring that their secondary income is taxed at the basic rate of 20%.

While it is a standard practice, it may sometimes lead to overpayment or incorrect deductions.

Regularly checking your tax code, understanding how it applies to your situation, and contacting HMRC if needed can help you avoid unnecessary tax issues and ensure your earnings are correctly taxed.

FAQs About the SBR Tax Code

What should I do if I no longer have multiple jobs but still have the SBR tax code?

You should contact HMRC to update your records and ensure your tax code is adjusted accordingly.

Does the SBR tax code mean I am paying too much tax?

Not necessarily, but it does mean you are taxed immediately at the basic rate. If your tax-free allowance isn’t being used elsewhere, you may be overpaying.

Can my employer change my tax code?

No, only HMRC can assign and update tax codes. However, your employer must apply the tax code given by HMRC.

Will I automatically get a refund if I overpay tax on SBR?

Yes, HMRC usually issues refunds after the tax year ends. You can also request an earlier review if you suspect an overpayment.

How do I check my tax code?

You can check it on your payslip, in your HMRC Personal Tax Account, or by calling HMRC directly.