Do you need 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 direct payment scheme is usually part of the answer: a DPNI for many employers, or an NI-only scheme for employers in the EU, the EEA and Switzerland.
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The short version
A DPNI scheme (HMRC's label is "direct payment (tax and NIC)") is a special type of PAYE scheme used when a UK-based employee's employer has no UK presence to deduct tax in the normal way. HMRC's manual makes the employee responsible for setting it up and paying HMRC, usually with an agent doing the work. See HMRC's own PAYE Manual, PAYE20100 (DPNI) and PAYE20090 (DCNI). It allows the correct UK Income Tax and the employee's National Insurance to be accounted for, even though the employer sits entirely overseas.
It is one of HMRC's direct payment schemes, and it is not the same thing as an NI-only scheme. HMRC have four relevant scheme types. Three are set up by the employee: a DPNI or a DCNI, and a DPGEN, which collects Income Tax only. The fourth is an NI-only scheme, registered in the employer's name where the employer owes UK employer's National Insurance, which is usual for employers in the EU, the EEA and Switzerland. An NI-only scheme doesn't collect Income Tax, so the employee's tax goes through Self Assessment or a DPGEN scheme.
In one sentence: a DPNI scheme collects UK Income Tax and the employee's National Insurance for a UK employee of an overseas employer that has no UK presence and owes no UK employer's National Insurance; where an employer in the EU, the EEA or Switzerland owes it, the scheme is an NI-only scheme instead, and an employer with a UK place of business runs normal PAYE.
Are you the employee, not the employer? If you're the UK worker being paid by a company abroad with nothing deducted from your pay, start with our companion guide, working in the UK for an overseas employer, which covers your tax and NI from your side.
When do you actually need one?
You're likely a candidate for a DPNI or 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. And if the employee actually works for a UK business, such as a UK client that directs their work, that business may have to operate PAYE and pay employer's National Insurance itself.
What HMRC's own manual says
You don't have to take our word for any of this. HMRC's PAYE Manual gives each scheme its own page: PAYE20100 for the DPNI, PAYE20090 for the DCNI and PAYE20120 for the NI-only scheme, and a fourth page, PAYE75030, says who sets each one up. Everything in quotation marks below is HMRC's own wording, copied exactly, so you can check each line on GOV.UK.
| Scheme | Who it is for | Who sets it up | What it collects | How income tax is paid |
|---|---|---|---|---|
| DPNI "direct payment (tax and NIC)", PAYE20100 | "An individual, who is required to pay their own PAYE Income Tax and NI." The list includes employees of "A foreign employer who has no address in the United Kingdom from which earnings are paid". It also covers some clergy, officials paid mainly by fees, some embassy and international organisation staff, and some mariners. | "The employee is responsible for setting up a DPNI scheme" | "A DPNI scheme is appropriate where liability for PAYE Income Tax and primary National Insurance Contributions (NIC) exist." | Through the scheme. The employee "pays both PAYE Income Tax and National Insurance (NI) to HMRC under the one PAYE reference." |
| DCNI "direct collection (employee only NIC)", PAYE20090 | A list of particular cases, including "Employees who have no employer for PAYE purposes and cannot be dealt with under the Direct Payment (DP) arrangements" and "Former DP cases where DP arrangements for tax have had to be cancelled". The rest of the list is certain dock, port and market workers, some reserve forces members, people working in more than one EEA country with no UK employer, some pensioners, and employers paying NICs on a modified basis. | The employee: "set up by an employee where direct payment of only primary Class 1 NI is due" (PAYE75030) | "A DCNI scheme type is used when direct payments of National Insurance (NI) only are to be made. Collection of the deductions is quarterly during the year." | Outside the scheme: "any tax that is due is collected through Self-Assessment" |
| NI-only scheme "national insurance only", PAYE20120 | "Where an employee works in the UK for an employer based in another EC member state and NI liability arises, the liability will be for both primary and secondary contributions." The page also covers a UK employer's staff posted abroad, and people working in two or more EC member states. | "The employer is responsible for setting up the NI scheme and paying the NIC to HMRC." | "A National Insurance (NI) scheme is used where the only liability is for primary and secondary National Insurance Contributions (NIC)." | Outside the scheme: "If the employee has UK tax liability this will be paid through Self-Assessment or, if preferred, a DPGEN (tax only) scheme." |
What the three pages add up to. Start with the employer's National Insurance. HMRC's own DPNI page says that where it is due for an employer in another EC member state, "the employer is responsible for setting up (or arranging for a UK agent to set up) an NI only scheme rather than a DPNI scheme", and the DCNI page says the same, "an NI only scheme rather than a DCNI scheme". If no employer's National Insurance is due, the usual answer is a DPNI. HMRC's DPNI guidance lists employees of a foreign employer with no UK address from which pay is sent. A DCNI is the exception, not an alternative you pick. HMRC's DCNI guidance lists particular cases, such as people with no employer for PAYE purposes who cannot be dealt with under the direct payment arrangements, and former direct payment cases.
Why the pages say "EC". HMRC's pages still refer to EC member states and EC Regulation 883/2004. For an EU employer today the rule comes from the UK and EU Trade and Cooperation Agreement, with the same result. Under the UK and EU Trade and Cooperation Agreement, an employer based outside the UK pays these contributions as if it were based here. The UK's separate agreements with Switzerland, and with Iceland, Liechtenstein and Norway, say the same for employers there. So where UK National Insurance is due, an employer in any of these countries owes employer's National Insurance too, and the scheme is an NI-only scheme in its name or its own UK PAYE, not a DPNI. We will ask HMRC for the scheme that fits your facts, and they may suggest a different one once they have the full facts.
For the setup steps and what it costs, see DPNI scheme setup. For the two employee schemes compared, see DPNI vs DCNI, and for the employer's scheme, what an NI-only scheme is.
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 |
| direct payment scheme (a DPNI or an NI-only scheme, which are different things, and we tell you which one we expect to ask HMRC for) | 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 direct payment scheme is the route that keeps you as the real employer, without forcing you to incorporate in the UK just to run one payslip. An EOR is usually the most expensive of the three, see what an Employer of Record costs in the UK and the true-cost comparison if you're weighing it up.
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, each pay period Income Tax and the employee's National Insurance are calculated, a payslip is produced, and the pay is reported to HMRC through Real Time Information, normally with a Full Payment Submission, though HMRC's manual says direct payment schemes can elect to submit quarterly paper returns instead. On a DPNI it's the employee who is responsible for paying the tax and NI over to HMRC, and HMRC's direct payment rules set those payments quarterly.
Watch out: a DPNI scheme isn't a way to avoid UK National Insurance, it's the correct way to account for it. Where UK NI is due, the employee's own (primary) NI is collected directly through the scheme. Whether employer's (secondary) NI is also due depends on your setup. An employer outside the EU, the EEA and Switzerland with no UK residence, presence or place of business usually has none to pay, but HMRC test place of business on the facts (a UK office, a UK bank account, or paying for the premises the employee works from can all count), and an employer with a UK place of business owes it and runs normal PAYE. An employer in the EU, the EEA or Switzerland is liable under its social security agreement with the UK (and then needs an NI-only scheme, not a DPNI). And where the employee works for a UK host or end client, that business can be treated as the employer for NI and required to operate PAYE for tax, so a normal PAYE scheme in its name applies rather than a DPNI. UK NI isn't always due at all: someone who normally works abroad and is sent here for a time by an employer based abroad, from a country with no social security agreement with the UK, is usually exempt from both employee's and employer's NI for their first 52 weeks, and a certificate of coverage can take an employee out of UK NI. Then only tax is collected, through a tax-only DPGEN scheme rather than a DPNI. A DCNI (HMRC's label is "direct collection (employee only NIC)") is a separate scheme HMRC apply only in specific cases; it collects the employee's National Insurance quarterly, not skipping contributions. "NI-only" is a different thing again and should not be used as a nickname for DCNI: it is HMRC's separate NI-only scheme (PAYE20120), required where the employer's (secondary) National Insurance is due as well as the employee's, and opened by the employer in the employer's name.
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 sick pay and statutory family pay are different: they're owed by whoever pays employer's (secondary) National Insurance. On a DPNI with no employer's NI, the overseas employer generally isn't liable for them, though it can still offer contractual sick and family pay. An employer in the EU, the EEA or Switzerland on an NI-only scheme, or a UK business treated as the employer for NI, is liable. The usual starter and leaver reporting still comes 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 a legitimate, HMRC-recognised way for an overseas company to employ someone in the UK without setting up a UK entity. It's one of a few direct schemes (DPNI, DCNI, DPGEN or NI-only). We will ask HMRC for the scheme that fits your facts, and they may suggest a different one once they have the full facts. Under a DPNI the scheme sits in the employee's name and we run the PAYE for you. 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 compliant with HMRC.
Frequently asked questions
What is a DPNI scheme?
A DPNI is an HMRC direct payment scheme that collects UK income tax and the employee's National Insurance where the employer is abroad, has no UK address it pays wages from and owes no UK employer's National Insurance. A DPNI is set up by the employee, who pays both income tax and employee National Insurance to HMRC under one PAYE reference. HMRC's DPNI guidance lists employees of a foreign employer with no UK address from which pay is sent. We will ask HMRC for the scheme that fits your facts, and they may suggest a different one once they have the full facts.
Who sets up a DPNI?
The employee. HMRC's manual says "The employee is responsible for setting up a DPNI scheme", so the scheme sits in the employee's name, not the employer's. In practice an agent usually does the work: we prepare the HMRC application, run the payroll every period and tell the employee what is due and when, and the employee pays HMRC. We will ask HMRC for the scheme that fits your facts, and they may suggest a different one once they have the full facts.
DPNI or DCNI: which applies?
For an employee of an overseas employer with no UK address it pays wages from, and no UK employer's National Insurance due, HMRC's usual scheme is a DPNI. HMRC's DPNI guidance lists employees of a foreign employer with no UK address from which pay is sent. A DCNI collects employee National Insurance only, quarterly, and any income tax due is collected through Self Assessment. HMRC's DCNI guidance lists particular cases, such as people with no employer for PAYE purposes who cannot be dealt with under the direct payment arrangements, and former direct payment cases. So a DCNI is not a free choice, and wanting to pay tax through Self Assessment does not make it available. We will ask HMRC for the scheme that fits your facts, and they may suggest a different one once they have the full facts.
Does an EU employer use a DPNI or an NI-only scheme?
Usually an NI-only scheme, not a DPNI. Someone working in the UK for an employer in the EU usually pays UK National Insurance, unless they hold a certificate of coverage (an A1) from that country. Where an employee works in the UK for an employer based in the EU and UK National Insurance is due, both the employee's and the employer's National Insurance are due, so the scheme is an NI-only scheme in the employer's name rather than a DPNI or DCNI. Employers in Switzerland, Norway, Iceland and Liechtenstein have their own agreements with the UK, which also make the employer pay UK employer's National Insurance where it is due. An NI-only scheme collects National Insurance only, not income tax. The employee's income tax goes through Self Assessment or a tax-only DPGEN scheme. We will ask HMRC for the scheme that fits your facts, and they may suggest a different one once they have the full facts.
Related guides
- DPNI vs DCNI, which direct-payment scheme applies to you.
- What an NI-only scheme is, the employer's scheme where UK employer's National Insurance is due.
- Moving from a DPNI to a full UK payroll, what happens to the scheme once you have a UK entity.
- Eight DPNI myths, the things overseas employers get wrong most often, checked against HMRC's own manual.
- Working in the UK for an overseas employer, the same setup from the employee's side.
- How much an Employer of Record costs in the UK, and why a direct payment scheme is usually cheaper.
- What a UK employee really costs, employer NI, pension and the rest for 2026/27.
Want this done for you?
Setting up and running DPNI and NI-only schemes is our specialism, manual HMRC application handled, payroll run every period, transparent pricing published.
See direct payment scheme setupThis guide is general information, not tax or legal advice, and reflects our understanding of the rules as at July 2026. Your circumstances may differ, please get specific advice before acting.