Direct schemes · Putting it right

Backdating a DPNI: the employee has already been paid

Someone has been working in the UK for an overseas company for months. They have been paid gross. No scheme exists, nothing has been declared, and somebody has just realised. This is more common than you would think, and it is fixable.

First, do not panic and do not stop paying them

The instinct is to freeze everything until it is sorted. Resist it. Stopping someone's salary creates an employment problem on top of a tax problem, and the tax problem is not made worse by continuing to pay them properly while you fix it.

What does make it worse is another six months of the same.

Work out the actual position before doing anything

You need three things. The date the employment genuinely started, which is the date work began rather than the date of the contract. Everything paid since, gross, by month. And the employment status question settled properly, because if the person is genuinely self-employed there may be no scheme required at all.

That last one is worth real attention. A surprising number of these situations turn out to be a status question that was never asked rather than a payroll failure.

The two things people get wrong here

The first is assuming the liability sits with the company. On a direct scheme it sits with the employee, so the person carrying the exposure is the one who has been quietly spending gross salary for six months. They need telling straight away, kindly and clearly.

The second is trying to fix it by starting a scheme from today and saying nothing about the earlier months. That is not a fix. It leaves a gap in the record that is more difficult to explain later than it would have been to disclose now.

The route

Register the scheme with the correct start date rather than today's date. Then bring the earlier periods up to date through the proper channel, with the figures worked out month by month rather than as one lump.

Expect interest on tax paid late. Expect that penalties are possible, and that where a disclosure is unprompted and cooperative the position is usually considerably better than where HMRC found it first. Nobody can promise you an outcome, and anyone who does is not being straight with you.

What actually helps

Coming forward before HMRC asks. Having a clear reason for what happened, and most of these have one: nobody involved had employed anyone in the UK before, and the guidance is genuinely not obvious to a company abroad.

Complete figures. Corrections that arrive in three instalments look like a firm that is still finding things.

And fixing the underlying process at the same time, so the disclosure is accompanied by an arrangement that will not repeat.

Where the money comes from

An awkward conversation worth having early. The liability is the employee's, but they were paid gross on the employer's instruction and have usually spent it in good faith.

Employers who handle this well fund the catch-up, or fund part of it, and treat it as the cost of a process failure that was not the employee's doing. Employers who insist on the strict legal position often keep the argument and lose the person.

How long the fix takes

The scheme itself is still four to eight weeks. The catch-up work runs alongside it. Realistically you are looking at a couple of months from the decision to the point where everything is current, which is why starting today is materially better than starting next quarter.

If you want it handled

This is squarely what we do. We work out the real position first, including whether a scheme was ever needed, then register it correctly and bring the arrears up to date. We will also tell you plainly if we think the exposure is small enough that you are worrying more than the facts justify.