If you work in the UK but your employer is based overseas, you might be responsible for handling your own tax and National Insurance. This is where a Direct Payment National Insurance (DPNI) scheme comes in. For UK-based employees of foreign companies, it’s an essential payroll arrangement to stay compliant with HMRC. But what exactly is a DPNI scheme, and how do you set one up?
At Gravita, our payroll team helps individuals and businesses manage payroll obligations efficiently, ensuring compliance with UK regulations. Whether you are an employee needing to register for a DPNI scheme or an employer wanting to understand its impact, our payroll team is here to support you.
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What is a DPNI scheme?
A DPNI scheme is a payroll setup where an individual, rather than their employer, is responsible for deducting and paying Income Tax and National Insurance directly to HMRC. This applies when an overseas employer has no UK presence and therefore cannot operate a PAYE scheme. Without a DPNI arrangement in place, an employee could risk non-compliance with HMRC, leading to penalties.
DPNI vs. DCNI – what’s the difference?
While both DPNI and DCNI schemes involve the employee taking responsibility for tax payments, there is a key difference. A DPNI scheme requires the individual to deduct and pay both Income Tax and National Insurance, whereas a DCNI (Direct Collection National Insurance) scheme only covers National Insurance contributions. The right scheme depends on the specifics of the employment arrangement.
Why would you need a DPNI scheme?
A DPNI scheme is necessary when you are a UK tax resident working for an employer that does not have a UK entity. Since your employer cannot operate PAYE, HMRC expects you to take responsibility for your own payroll deductions. If you do not set up a DPNI scheme, you may end up underpaying tax and National Insurance, which could lead to fines or back payments.
How long does it take to set up a DPNI scheme?
The process can take up to two months, depending on HMRC’s processing times and how quickly the required information is submitted. Setting up a scheme involves registering with HMRC, ensuring the correct deductions are made, and understanding ongoing reporting requirements. Working with a payroll provider like Gravita can help speed up the process and reduce the risk of errors.
How does a DPNI scheme work on an ongoing basis?
Once registered, you will need to calculate and report your tax and National Insurance contributions to HMRC every month. This usually requires payroll software to ensure accuracy. Depending on the amount due, payments might need to be made monthly or quarterly. Mistakes can lead to penalties, which is why many people choose to work with payroll specialists to ensure everything is handled correctly.
Who pays for the DPNI scheme?
As the employee, you are responsible for setting up and running the scheme. This includes making the correct deductions, filing reports, and ensuring payments to HMRC are made on time. While some overseas employers may offer financial assistance, the obligation ultimately falls on you. It’s important to budget for this and ensure you have the right support to manage it efficiently.
Could a DPNI scheme affect mortgage or credit applications?
One potential challenge with a DPNI scheme is proving your income to lenders. Unlike standard PAYE employees who receive payslips and a P60, individuals under a DPNI scheme may find it harder to provide the necessary documents for mortgage or loan applications. Some lenders may be unfamiliar with this arrangement, so it’s worth discussing with a financial advisor before making any major financial commitments.
How Gravita can help
Setting up and managing a DPNI scheme can be complex, but you don’t have to do it alone. At Gravita, our payroll specialists can guide you through the entire process, from initial registration to ongoing compliance. We ensure your tax and National Insurance contributions are calculated correctly, reducing the risk of errors and penalties.
To learn more, watch our DPNI explainer video, where Payroll Manager and DPNI expert Rebecca Aimey answers common questions.
Book a meeting with our payroll team
If you need to set up a DPNI scheme or have questions about how it affects your payroll obligations, our experts are here to help. Book a meeting with our payroll team to get tailored advice and ensure you remain compliant with UK tax regulations.
