With Real Time Information (RTI) set to come into place from April 6, employers will be required to send HM Revenue & Customs (HMRC) details of how much each employee has been paid, and the amount of tax deducted under the pay-as-you-earn system, every pay run.
Previously details have only been required to be sent to the taxman on an annual basis. The FSB is concerned that the largest shake-up since the introduction of PAYE in 1944 will catch many small businesses on the hop; unprepared for the upheaval.
Mike Cherry, policy chairman for the FSB, believes the implementation of RTI would be "incredibly burdensome" and would come at an awkward time for many companies.
"There is additional cost, which is to be regretted, but the administration time takes people away from their business at a time when they should be keeping it going or growing it", said Cherry.
The FSB is proposing a revision to the current RTI system that is due to be rolled out, where employers could submit payroll returns once a month, up to two weeks beyond the tax period.
This alternative method would benefits businesses that paid their staff on a weekly basis or had a variety of payment runs such as weekly, four-weekly or monthly. It could also be aligned with the system for paying tax and insurance toHMRC.
However, the likelihood of persuading the government to change its proposed system so close to the April 6 start date appears unlikely, with HMRC revealing it was “on track” for employers to begin real-time reporting for the beginning of April.
A recent poll by lobby group, the Forum of Private Business, found that two-thirds of small businesses understood the implications of the new RTI system, but almost half of respondents were unable to recognise its benefits.
Phil Orford, chief executive for the FSB, added: "There are a significant number still ignorant and unaware.
"The other important issue raised by our research is the huge lack of confidence small firms have in HMRC to cope with the changes."