These are not internet myths. They are the eight things that arrive in real enquiries, usually stated with complete confidence, and three of them are wrong in a way that changes what you owe.
Direct payment schemes are one of the least written about corners of UK payroll, so almost everything people know about them arrives second hand: from a forum, from a lawyer in another country, or from an accountant who has met one case in fifteen years. Some of what follows is close enough to be forgivable. Some of it will put you on the wrong HMRC scheme, and for one of them there is a manual page that says so in plain English.
“We need a UK company before we can employ anyone there.”
You do not. A company with no UK entity, no UK office and no UK bank account can employ someone in the UK and have their tax and National Insurance accounted for properly. That is precisely the gap the direct payment schemes were built to fill. Incorporating is sometimes worth doing for other reasons, local contracts, funding, credibility with customers, but employing one person is not one of them, and a subsidiary set up only to run a payroll brings filing obligations that outlast the hire.
More on that: do you need a UK company to hire in the UK?
“We will get the scheme set up at our end.”
On a DPNI you cannot, and this catches out employers who expect to be the applicant. HMRC’s manual at PAYE20100 puts the responsibility for setting up a DPNI scheme on the employee, so a DPNI scheme is opened in the employee’s name and the employee is the one who pays HMRC each month. It has practical consequences beyond the paperwork: the authority to deal with HMRC has to come from the person the scheme belongs to, and the reference, the correspondence and the coding notices all go to them rather than to your finance team.
More on that: what a DPNI scheme actually is
“A direct payment scheme means there is no employer’s National Insurance to worry about.”
This is the expensive one, and the answer depends on where your company sits. If it is outside the EU and the EEA, secondary contributions typically do not arise, and a DPNI carries the income tax and the employee’s own National Insurance. If your company is inside the EU or the EEA, secondary contributions usually do arise, and HMRC’s answer is a different scheme altogether. PAYE20100 says that where a UK-based employee works for an employer in another member state and the liability covers both primary and secondary contributions, the employer sets up an NI-only scheme instead. PAYE20120 then puts the registration, and the payment of the National Insurance to HMRC, squarely on the employer.
A Turkish textile machinery maker with one field service technician in Kidderminster is on the first path. An otherwise identical company based in the EU is not, and that is not a technicality: it decides which scheme exists, who registers it and who writes the cheque. An individual social security certificate can move the answer either way, so it is worth establishing before the first payday rather than after.
More on that: which direct payment scheme applies to you
“DCNI and an NI-only scheme are two names for the same thing.”
They read like synonyms and they are not. DCNI, at PAYE20090, is for direct payments of National Insurance only, primary contributions, with any income tax collected through Self Assessment instead. An NI-only scheme, at PAYE20120, is used where the liability is for primary and secondary contributions together. PAYE20090 makes the distinction itself: where secondary contributions also apply, a separate NI-only scheme is required. We are blunt about this one because we got it wrong ourselves and a prospect caught it, which is a fair reason to expect a payroll firm to be precise about the difference rather than airy.
More on that: the table below, and the payroll glossary
Myths two, three and four are really the same misunderstanding wearing three hats. There is not one direct payment arrangement with a few variations. There are three scheme types, each with its own page in HMRC’s PAYE manual, and they differ on the two things that matter most to you.
| Scheme | What it collects | Who pays HMRC |
|---|---|---|
| DPNI PAYE20100 | Income tax and the employee’s own National Insurance, under one reference | The employee |
| DCNI PAYE20090 | The employee’s own National Insurance only. Income tax goes through Self Assessment | The employee |
| NI-only PAYE20120 | Primary and secondary National Insurance. No income tax at source, so tax needs its own route | The employer |
The deciding question is never which one sounds simplest. It is whether employer’s secondary National Insurance is due at all. Everything else, whose scheme it is, who registers it, who pays, follows from that single answer, and it has an answer rather than a judgement call. Our fuller comparison of DPNI and DCNI works through both, and the route decision tree starts a step further back, at whether a direct scheme is right for you at all.
“One scheme will cover all our UK staff.”
A DPNI or a DCNI is registered to the employee, so it does not scale the way an ordinary payroll does. Three UK hires means three schemes, three PAYE references, three sets of filings and three year ends, which is why the cost of a direct scheme rises in steps rather than gently. An NI-only scheme is the exception, because it belongs to the employer, so one scheme can carry several people. Employers who assume the second shape and discover the first are the ones who get a surprise, and it is nearly always in that direction.
More on that: employing UK staff from overseas
“If the tax goes unpaid, HMRC will come after us.”
On a DPNI, no. The scheme belongs to the employee and so does the liability, which is the single most misunderstood fact about these arrangements and the one that changes an employee’s mind about agreeing to one. It is not, however, a risk you have got rid of. An employer who hands someone a gross salary and leaves them to work out their own PAYE has not transferred a problem, it has manufactured one, and the way it usually surfaces is that a good employee discovers in January that they owe money they have already spent.
More on that: who HMRC actually pursues on a DPNI
“We have no UK entity, so the pension rules cannot apply to us.”
They can, and rather than guess we asked. The Pensions Regulator confirmed to us in writing in July 2026 that automatic enrolment duties apply as the legislation normally provides where the worker ordinarily works in Great Britain, even where the employer is wholly overseas with no UK establishment. Two details do the damage. The duties sit with the employer and cannot be discharged by the employee on your behalf, because a direct payment scheme collects tax and does not move employer status. And the duties start date is the date the employee began work, not the date anybody contacts the regulator, so on an established hire the duty may already be running.
More on that: auto-enrolment for overseas employers
“We can just pay them gross and let them sort out a tax return.”
Half right, which is why it survives. Paying gross really is how these arrangements work, and the employee really does account for their own deductions. What does not work is paying gross with nothing registered at all. A tax return is not a substitute for a scheme that ought to exist, and on the National Insurance side a return does not reach the problem in the first place. It is also a separate question from whether the person is an employee, which turns on how the work is actually done and not at all on where the company happens to be incorporated.
More on that: the employment status test, and what to do when someone has already been paid
Several of the eight are tidiness. One is not. Before your first UK payday, establish whether employer’s secondary National Insurance is due, because that single answer decides which scheme exists, whose name it is registered in, who pays HMRC and what the whole thing costs to run. Everything else on this page is downstream of it, and getting it wrong is not a wording problem. It is a bill.
It is a route HMRC built and documents in its own PAYE manual, at page PAYE20100. It is not a loophole, an aggressive interpretation or a grey area. It exists because a company with no UK presence has no way to operate an ordinary PAYE scheme, and somebody still has to account for the income tax and the National Insurance.
It turns on whether employer’s secondary National Insurance is due, which usually depends on whether the company sits inside the EU or the EEA, and an individual social security certificate can move the answer. The three scheme types have three different manual pages, and the right one is worth confirming with HMRC before the first payday rather than assuming. That confirmation is part of what we do at the start of a case.
Where the worker ordinarily works in Great Britain, yes. The Pensions Regulator confirmed it to us in writing in July 2026, together with the two points people miss: the duties stay with the employer, and they start from the date the employee began work rather than the date anybody gets in touch.
Common, and fixable. It is a disclosure exercise rather than a catastrophe, and the position tends to be better the earlier it is raised. Keep paying the employee, get the actual numbers on paper, and read our piece on backdating a scheme before contacting anybody.
General guidance for overseas employers with UK staff, correct at the time of writing. It is not tax or legal advice, and HMRC’s PAYE manual is the authority on which scheme type applies to any particular case. Which one you need turns on facts we would need to look at, including where the company is established and what a social security certificate says, so please check your own position or ask us.
Tell us where the company is based and where the employee works. We will identify the right scheme type, confirm it with HMRC, and give you a fixed monthly fee in writing before you commit to anything.
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