HM Revenue and Customs (HMRC) has confirmed that it will be going ahead with a major reform of the PAYE system.
The overhaul will involve a switch to a real time information system.
The new system will mean that employers must supply HMRC with details, such as income tax, national insurance contributions and student loan payments, on each payroll day rather than at the end of the year.
HMRC said that the change would bring several benefits. These include making it easier to ensure individuals pay the right tax after a change of job and removing the need for the P45/P46 process over time.
There would be a simplification of the PAYE end of year reconciliation process for employers, and much of the uncertainty that leads to errors in the tax credits system would be lifted.
Following a period of consultation, HMRC said that it is to embark on a pilot scheme in April 2012, involving volunteer employers and software developers.
Work to ensure data quality will begin in October 2011 and continue until all employers have moved to the new system.
Once the pilot scheme has been successfully completed, the plan is that employers will be expected to start using the real time information system from April 2013. It will become mandatory by October 2013.
David Gauke, Exchequer Secretary to the Treasury, said: "Real Time Information will support improvements to the PAYE system making it more accurate for taxpayers and easier for employers and HMRC to administer.
"We need a PAYE system that can meet the demands of the 21st century workplace and ensure that the tax system works better."
Stephen Banyard of HMRC added: "We wanted people who use the system every day to give us their views on the collection of Real Time Information. We have listened to the concerns of payroll providers and employers surrounding the proposed mandation date and amended our plans to take these into account.
"We want to work with software developers and employers to help us deliver the new system. I urge anyone interested in being involved in the pilot to contact us."
This week marks the beginning of the new tax year and some significant changes to the tax system.
Many of the changes have been introduced as a way of helping with the Government's efforts at budget deficit reduction.
Among many changes, one of the biggest differences people will experience is in income tax. As from 6 April, the personal allowance, which marks the point at which income tax becomes payable, rises by £1,000 to £7,475.
However, the threshold at which higher earners become liable for the 40 per cent tax rate falls to £42,475.
The employee national insurance contribution for those who qualify climbs from 11 per cent to 12 per cent.
Anyone who pays NI over the upper earnings limit sees their charge rise by 2 per cent.
A land tax stamp duty rate of 5 per cent is to be charged on residential property transactions worth more than £1 million.
Pension contributions that are entitled to tax relief now have an allowance of £50,000, down from the previous figure of £225,000.
There is no longer a requirement to purchase a pension annuity by the age of 75.
Savers who are willing to keep their money in long-term savings accounts are benefiting from improved interest rates.
According to Moneyfacts, the financial information website, the returns provided by fixed-rate bonds have been on the increase since last summer.
Although that improvement needs to be set in context - the increases have been from a historic low of just 2.25 per cent - it appears to have been prompted by speculation that the Bank of England will be looking to raise official interest rates later this year.
Moneyfacts reported that the average interest rate for a one-year fixed-rate bond is now 2.85 per cent, a high water mark not seen since March 2010.
Two-year bonds hold out the promise of an average 3.42 per cent return. Locking in money for three years rewards savers with an average interest rate of 3.7 per cent, while committing to four years produces an average rate of 4.17 per cent.
Michelle Slade of Moneyfacts said: "The biggest increase in rates is on short-term deals, which are the most popular amongst savers.
"Most of the best deals are from smaller building societies. If savers want to make the most of their money they may need to look further afield than their local High Street.
"The markets expect a rise in Bank base rate in the not too distant future and this is being factored in to the rates being offered to savers."
But Ms Slade advised that people would come face to face with a sizeable penalty charge if they decided they wanted access to their money during the fixed-rate term, and should, therefore, consider carefully whether or not they could afford to tie their savings up for a lengthy period.