What is a DPNI scheme? A plain-English guide
If your company is based abroad and you want to employ someone in the UK — but you don't have a UK company or branch — you've probably hit the same wall everyone does: standard PAYE seems to assume you have a UK entity, and you don't. A DPNI scheme is usually the answer.
The short version
A DPNI scheme (Direct Payment, National Insurance and Income Tax) is a special type of PAYE scheme that HMRC lets you operate when you have a UK-based employee but no UK trading presence to deduct tax in the normal way — see HMRC's own PAYE Manual, PAYE20100 (DPNI) and PAYE20091 (DCNI). It allows the correct UK Income Tax and National Insurance to be accounted for, even though the employer sits entirely overseas.
You'll also hear it called an NI-only scheme or a "Direct Payment" scheme. There are a couple of variants (DPNI and DCNI), and which one fits depends on who is responsible for accounting for the tax and National Insurance.
In one sentence: a DPNI scheme is how an overseas employer with no UK entity runs compliant UK payroll for a UK employee.
When do you actually need one?
You're likely a candidate for a DPNI/NI-only scheme if all of the following are true:
- Your company is registered and based outside the UK.
- You have no UK entity, branch or place of business that could operate a normal PAYE scheme.
- You're employing someone who lives and works in the UK.
- That person is genuinely an employee, not a self-employed contractor invoicing you.
If you do have a UK entity or branch, you generally don't need a DPNI scheme — you'd run a standard UK PAYE scheme instead.
DPNI vs standard PAYE vs Employer of Record
Overseas employers usually have three realistic routes. Here's how they compare:
| Route | Best when | Trade-off |
|---|---|---|
| Standard UK PAYE | You have (or will set up) a UK entity or branch | Most control; needs a UK entity |
| DPNI / NI-only scheme | No UK entity, but you want to be the direct employer | Specialist setup; can't be done fully online |
| Employer of Record (EOR) | You need to start fast and don't want to be the legal employer | Higher ongoing cost; you give up the direct relationship |
A DPNI scheme is the route that keeps you as the real employer — without forcing you to incorporate in the UK just to run one payslip.
How a DPNI scheme is set up
The key thing to know: a DPNI scheme cannot be registered through the normal online employer registration. HMRC has to set it up manually, which means contacting the right team and supplying the right information about the overseas employer and the UK employee. Getting the application right first time avoids weeks of back-and-forth.
Once it's open, running it looks much like any UK payroll: each pay period you calculate Income Tax and National Insurance, produce a payslip, and report to HMRC in real time (an RTI Full Payment Submission) on or before payday. The employee is paid their net pay, and the tax and NI are paid over to HMRC.
Watch out: employer National Insurance and, where due, employee NI still have to be accounted for under a DPNI scheme — it isn't a way to avoid UK NI. The "NI-only" name refers to certain cases where Income Tax isn't operated at source, not to skipping contributions.
What about pensions and the rest?
UK auto-enrolment pension duties can still apply to a UK-based worker, so it's worth checking your position rather than assuming an overseas employer is exempt. Statutory payments (sick pay, parental leave) and the usual starter/leaver reporting also come into play. This is exactly the kind of detail a specialist handles so you don't trip over it.
The bottom line
A DPNI scheme is the standard, legitimate way for an overseas company to employ someone in the UK without setting up a UK entity. It's a specialist area — the registration is manual and the ongoing compliance has a few traps — but once it's set up properly, it runs quietly in the background and keeps you fully compliant with HMRC.
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See the DPNI setup serviceThis guide is general information, not tax or legal advice, and reflects our understanding of the rules as at June 2026. Your circumstances may differ — please get specific advice before acting.