Although there was initially some scepticism over the HMRC's ability to deal with online submissions, it seems that after a few teething issues, companies are finding that the advantages of online filing far outweigh any changes they have had to make. In fact, nearly one and a half million employers filed their Employers Annual Return last year and many more are set to join them in 2008.

Online filing legislation was introduced by the government in 2002 and it's already mandatory for large and medium-sized businesses (those with more than 50 employees) to file their Employers Annual Return online. Small employers (those with fewer than 50 employees) will be required to follow suit by 2010 and generous incentives have been in place since 2002 for small businesses who file online early.

Online filing is simply the term for sending PAYE forms to HMRC electronically, cutting the need for paper returns. Currently it's only mandatory for employers to send their Employers Annual Return online; however compulsory submission of in-year forms (P45 (1) P45 (3) and P46) will be in force soon (2009 for large businesses and 2011 for small businesses).

While larger companies were more equipped to deal with changing legislation, smaller companies may feel anxious about the changes, so now is the time they must ensure that they are equipped with the right tools and payroll software to deal with the changes.

Small companies should seriously consider filing online as soon as possible - this will ensure they are ready for the legislation changes in 2010, avoid being fined for late or incorrect submissions and claim the tax-free payments from HMRC, which still amount to 175.00 pounds over the next two years.

Small businesses generally have two choices, they can:

* Use payroll software in-house

* Use an intermediary like an agent or Payroll Bureau who can file on behalf of the business.

The payroll software used must be capable of submitting Employers Annual Return online and must meet HMRCs Quality Standard, which checks and verifies the data prior to submission. If an intermediary is being used, the business is responsible for ensuring they are using the correct software.

Many small companies may decide to outsource their payroll in light of the new requirements as they think that it's too complicated to run in-house, but that's no longer the case as most payroll software manages all the legislation changes automatically. In fact, businesses could save a lot of money running payroll themselves and it could give them more control over their labour costs, hours worked and absences.

There are numerous payroll products on the market which are capable of sending both Employers Annual Returns and in-year forms online and meeting HMRC Quality Standard - for most you need little payroll expertise and most functions are managed automatically.

To conclude, with new technology, and the lure of instant return on investment with tax-free payments of up to 175.00, pounds small businesses certainly shouldn't be anxious about online filing, in fact they should see it as a way of evaluating their payroll practices, enjoying the benefits of online filing and claiming the tax-free incentive payment for an instant return on their investment.