The Direct Payment (DPNI) scheme, is a payroll system where the employee is responsible for setting up the payroll scheme and paying both PAYE Income Tax and National Insurance (NI) to HM Revenue & Customs (HMRC) under one PAYE reference.
This scheme is appropriate where liability for PAYE Income Tax and primary National Insurance Contributions (NIC) exist.
Who does the DPNI scheme apply to?
The DPNI scheme applies to certain types of employees or office holders, including:
- Employees of a foreign employer who have no address or place of business in the UK from which earnings are paid.
- Employees of a foreign embassy or consulate, or certain international organisations who do not voluntarily operate a PAYE scheme.
- Mariners hired under offshore manning arrangements with no UK employer or host employer.
- Roman Catholic Priests
- Officials whose earnings are primarily made up of fees paid by the public, such as registrars
- Certain employees of foreign and Commonwealth Governments, for example, a British chauffeur on the staff of a foreign embassy
- British employees of certain international organisations
How does the DPNI Scheme work?
In the DPNI scheme, the employee is responsible for setting up their own payroll scheme and making direct payments to HMRC. This includes both PAYE Income Tax and primary Class 1 NIC.
The employee is issued their own payroll (PAYE) reference number from HMRC and will be required to process monthly payroll submissions to HMRC. Depending on how much tax and NI the employee owes they will need to pay HMRC on a monthly or quarterly basis.
- If you work for an Embassy, High Commission or Consulate
Employees working for an embassy or consulate in the UK can be liable for tax and primary Class 1 NIC.
If the employees work for an EEA country’s Embassy, High Commission or Consulate of a Country and are also a national of that country, there are special rules that apply.
If the embassy or consulate does not make arrangements with HMRC, each employee is responsible for setting up and operating a DPNI scheme to pay their PAYE Income Tax and primary Class 1 NIC to HMRC.
It is possible that the embassy or consulate will voluntarily arrange with HMRC to operate a PAYE scheme and make payments to HMRC, but there is no obligation for them to do this.
- If you are a UK resident mariner
Similarly, a UK resident mariner working on a UK-flagged ship will be liable for primary Class 1 NIC even if the employer or agent remunerating them is in another EC member state.
As a UK resident, they would also be liable for PAYE Income Tax. The mariner is responsible for setting up and operating a DPNI scheme to pay their PAYE Income Tax and primary Class 1 NIC to HMRC.
Other cases and schemes that can apply
The DPNI scheme is the most common scheme but there are generally three schemes that could be used depending on the employees’ circumstances.
- DPNI – Direct Payment Scheme where direct payment of employee NI and Income Tax is due.
- DCNI – Direct Collection where direct payment of employee-only primary Class 1 NI is due.
- DCNI – Direct Collection where deduction of Income Tax only is due.
These special payroll schemes cannot be registered online and HMRC must be contacted directly to arrange them.
At SMCO, our specialist payroll department offers bespoke payroll services. If you are considering the DPNI payroll scheme, then our experts will be more than happy to assist.
Please contact us today for further assistance.
