Businesses are being urged to ensure they are prepared for ‘massive changes’ to the way they report the tax paid on their employees’ wages.

Businesses are being urged to ensure they are prepared for ‘massive changes’ to the way they report the tax paid on their employees’ wages.

From April 2013, HM Revenue and Customs (HMRC) is introducing a new way for employers to report Pay As Your Earn (PAYE) payments called Real Time Information, or RTI, which is being hailed as the biggest change to the payroll system for many years.

RTI will see information about PAYE payments submitted to HMRC electronically at the time they are made, rather than at the end of the year as they are at present.

However, payroll experts at Moore and Smalley Chartered Accountants and Business Advisors say the changes will require many smaller businesses to invest in or update payroll software to allow them to comply with RTI.

Margaret Merrifield, payroll manager at Moore and Smalley adds, 'HMRC is bringing these changes in to make the PAYE system easier for employers and more accurate for individuals.

'However, in the short term it will require employers to ensure their payroll data is correct and in the right format for RTI purposes.

'Firms that already use payroll software will need to update it so it’s capable of processing RTI, while firms that don’t currently use payroll software need to plan how they will be ready for these new rules. Businesses should not underestimate how these changes will affect the way they operate their payroll.'

Some commercial payroll software providers provide free products for employers, while those with nine or fewer employees can also use HMRC's free Basic PAYE Tools.

Most employers will be legally required to report payroll information in real time from April 2013 with all employers doing so before October 2013. HMRC will tell business when they need to make the changes.

See also: PAYE for sole traders