DPNI Scheme Explained: Paying UK Tax When Working for an Overseas Employer

If you're a UK resident working for an overseas employer with no UK presence, you may be surprised to learn that you’re responsible for payroll and running the PAYE system under your employer’s name. This is where the Direct Payment National Insurance (DPNI) scheme comes into play. Managed by HMRC, the DPNI scheme ensures you remain tax compliant by setting up the employer’s PAYE system, even though you're technically the employee.

In this guide, we’ll break down what the DPNI scheme is, who needs one, and how it works in practice.

What Is the DPNI Scheme?

The Direct Payment National Insurance (DPNI) scheme is a payroll arrangement set up with HMRC where you, the employee, are responsible for operating the PAYE. This means you’ll deduct and pay your own Income Tax and Class 1 National Insurance Contributions (NICs), even though you're not self-employed.

In the UK, payroll tax and NICs are collected by the employer and paid to HMRC. DPNI is designed for situations where the normal PAYE system doesn’t apply, most commonly when you're employed by an overseas employer that has no presence or payroll setup in the UK.

Different Types of Direct Payment Schemes (DP): Know the Variants

DPNI is just one of several schemes under HMRC’s Direct Payment (DP) framework. Other types include DPGEN (Direct Payment – Tax Only) and DCNI (Direct Collection – National Insurance Only). Each scheme has different requirements for when and what you’re required to report. For example, DPNI (Direct Payment National Insurance) covers both Income Tax and Class 1 NICs and usually involves monthly PAYE submissions. DPGEN covers only Income Tax, while DCNI applies only to NICs. DPNI usually involves monthly Real Time Information (RTI) submission, though it may be in different periods. Other schemes are generally run on a quarterly basis. These schemes are assigned depending on your employment status, need and requirement, what is due, and HMRC’s assessment.

Exploring all the details and requirements of all schemes is out of scope of this post. In this post, we focus only on the DPNI scheme. The differences between schemes, how HMRC decides which one applies, requirements and details, and what fits your case are detailed and vary significantly — that’s a topic (or topics) for another day.

Direct Payment National Insurance Explained

Under the DPNI scheme, you become your employer’s payroll administrator and pay your own payroll tax and NICs. That includes:

• Calculating your gross to net pay
• Submitting RTI (Real Time Information) reports to HMRC
• Paying the correct Income Tax and NICs directly to HMRC

It’s important to note that you’re not self-employed. You’re still an employee, but one whose employer isn’t present in the UK and would not run the payroll system like others. In DPNI, the employee is the one who carries the employer’s name in the PAYE system. Do not mix up self-employment and DPNI. Employment and self-employment are never a matter of choice but determined by facts and the elements of the job. This is especially relevant for remote workers, international contractors, or UK-based employees of overseas companies.

While this may sound complex, most of the calculations are handled through HMRC’s online systems or payroll software. You don’t need to guess what to pay—HMRC will tell you once your records are in place.

Working for an Overseas Employer: When DPNI Is Required

If you live in the UK but your employer is based overseas and doesn’t have a UK PAYE scheme, HMRC will typically require you to register under a DPNI scheme. You’re responsible for complying with UK tax law, even if your employer isn't.

For example, DPNI applies if:

• You're employed by a US tech company while living in the UK
• Your employer doesn’t withhold UK tax or NIC
• Your company has no physical or legal presence in the UK

You’re still entitled to employment rights under UK law (subject to your contract), but tax and NIC obligations fall directly on you. This setup is often misunderstood and is very different from freelancing or self-employment.

About Setting Up DPNI

Setting up a DPNI scheme can be done through HMRC’s PAYE system. First, HMRC will need to understand your employment arrangement. Once registered, you will begin submitting monthly RTI (Real Time Information) returns and making the necessary payments. This can be managed either by yourself or by appointing an agent. Many people handle this on their own, depending on their comfort with the process. You’ll also receive tax coding notices from HMRC and may be required to complete a Self Assessment return depending on your specific tax situation.

Direct Payment Scheme’s Technical Aspects and Complexities

While Direct Payment Schemes registration is done through HMRC’s PAYE system, it is often treated as a technical and complex case. The process is not straightforward, and HMRC’s instructions are limited. In fact, these cases are handled by a specialist team within HMRC who do not have direct contact with the public. This indirect communication and handling make it harder for individuals to understand their own eligibility or set up the Direct Payment Schemes correctly. When you search for guidance and details published by HMRC, you will be surprised that while their rules and laws are clear on who should register DPNI, the details and requirements are scattered, confusing or not conclusive.

These are jobs in the UK for overseas employers with no place of business and no presence. HMRC guidelines apply that overseas employers should run the PAYE system like every other employer in the UK.

Working a DPNI overseas job in the UK is a rare tax scenario. It generally does not apply to British nationals, or those from countries and regions covered under specific agreements like the Withdrawal Agreement, EEA-EFTA, Swiss arrangements, or the Trade and Cooperation Agreement. In some of these cases, different tax rules apply, and further approvals, including from NICO, may be required.

As a result, overseas employers with a place of business or establishment in the UK or EU may not qualify for DPNI, as they are expected to align with UK payroll standards and PAYE obligations.

The detailed requirements are complicated and cannot be fully listed here — but it is fair to say that the DPNI scheme is not generally intended for British nationals.

For non-British nationals, i.e., immigrants—working remotely for an overseas employer alone is never an immigration route into the UK. One cannot legally migrate to the UK solely for the purpose of working for an overseas employer. Understanding this point is key to understanding the DPNI’s rarity: it is rare for UK nationals, and rare for immigrants until now.

Because of these factors and its rarity, and the legal and tax complexities involved, many HMRC staff may not be familiar with the correct procedure and details. Also note there isn’t published step-by-step guidance or direct contact access to this specialist team; thus, misdirection or delays are not uncommon.

This is why many individuals find it helpful to consult a tax advisor or payroll specialist, especially if they’re unsure about tax codes, Class 1 NIC thresholds, or filing obligations.

Seek Professional Help For the Right DP Schemes

Because of this, and the legal and tax complexities involved, many individuals find it difficult to navigate DPNI setup correctly. As a specialist accountant experienced in DPNI cases, Elaga Accountancy can help you understand your obligations, ensure compliance, and handle submissions accurately — especially if you're unsure about tax codes, Class 1 NIC thresholds, or reporting requirements.

If you're in this situation and need help setting up or managing a DPNI scheme, feel free to get in touch with Elaga. Accountants at Elaga Accountancy are always happy to assist you in any UK tax matters. Contact us for more information.

***Contact us to learn more.
#DPNIScheme #UKTax #OverseasEmployer #DirectPaymentNI #PAYEsetup #HMRC #UKPayroll #RemoteWorkUK #TaxCompliance #InternationalEmployment #SelfAssessment #UKContractors #WorkingAbroad #PAYEUK #IncomeTaxUK