HMRC has relaxed the PAYE reporting deadline for businesses with 50 or less employees until 5 October 2013 - effectively a six month extension.

In a statement, HMRC said it 'recognises that some small employers who pay employees weekly, or more frequently, but only process their payroll monthly may need longer to adapt to reporting PAYE information in real time. HMRC have therefore agreed a relaxation of reporting arrangements for small businesses.

'Until 5 October 2013, employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month (5th).'

RTI - which kicks in for everyone else in April - is the biggest PAYE shake-up in over half a century and has been mired in controversy since news of its introduction first surfaced.

The Chartered Institute of Taxation (CIOT) and the Low Incomes Tax Reform Group (LITRG) were quick to welcome the announcement.

CIOT president Patrick Stevens said: 'The relaxation demonstrates that the government has listened to the concerns of employers, their agents and the organisations that represent them. This follows constructive dialogue between numerous professional and trade bodies, led by CIOT and LITRG, and government. It is the culmination of many discussions that we have had over a number of months with various ministers, other MPs and peers, and officials.'

Anthony Thomas, chairman of LITRG said: 'Everybody understands that RTI needs to work well, not just to eradicate avoidable mistakes from the PAYE system, but to help Universal Credit be responsive and sensitive to the needs of claimants.

'We know that small and growing businesses will bear the major part of the cost and administrative burden of RTI. Giving small businesses some leeway at least over the next few months is good news. The government is showing its willingness to understand how best they can assist in relieving the pressures on that important sector of the economy.'

Swathes of recent surveys had revealed many were not ready for the changes.

Findings from the October 2012 Sage Omnibus survey of over 1,000 UK SMEs, found that a quarter of all UK SMEs have not even heard of RTI, while a third are confused about how it will impact their business.

When introduced in April 2013, RTI will require employers to provide employee PAYE, National Insurance and student loan information to HMRC at the point of payment every month, rather than just at year end.

HMRC said it will 'continue to work with employer representatives during the summer to assess and understand the impact of RTI on the smallest businesses and consider whether they can make improvements to real time reporting which will address their concerns without compromising the benefits of RTI or the success of the DWP's Universal Credit'.