Can You Use Excel for Making Tax Digital Spreadsheets?

Making Tax Digital (MTD) is changing how freelancers, sole traders, and landlords manage their taxes. Instead of submitting one tax return each year through manual processes, HMRC now requires digital record keeping and regular submissions via compatible software.

Because Excel has been a trusted tool for bookkeeping for decades, many people want to know if they can continue using it. The answer is yes, Excel can still play a role in Making Tax Digital spreadsheets, but it can’t be used on its own.

Keep reading to learn exactly how Excel fits into Making Tax Digital.

Key points

• Excel can be used for Making Tax Digital, with some limitations ✅
  You can’t submit tax data directly to HMRC via Excel. To stay compliant, you must connect it to bridging software or use fully compatible accounting software that can handle submissions.
• You must keep complete digital records of your income and expenses 💻
  MTD requires accurate digital records, including income, expenses, transaction dates, and totals. These records form the basis of your quarterly updates and final declaration.
• Bridging software connects Excel to HMRC, but adds extra complexity 🖇️
  Bridging software allows Excel to submit data to HMRC by creating a digital link. However, this adds another tool to manage and requires ongoing manual maintenance of your spreadsheets.
• Excel increases manual work and the risk of errors compared to automated tools ⚠️
  With Excel, you must enter transactions, maintain formulas, and check totals yourself. This increases the risk of mistakes and makes compliance more time-consuming, especially as reporting becomes more frequent under MTD.

What is Making Tax Digital?

Making Tax Digital is HMRC’s initiative to modernise the UK tax system. The goal is to make tax reporting more accurate, more efficient, and easier for taxpayers to manage.

Under MTD for Income Tax, you must:

• Keep digital records of income and expenses
• Send quarterly summaries to HMRC
• Submit a final declaration confirming your tax position
• Maintain digital links between your records and submissions

This system reduces errors caused by manual entry and helps taxpayers stay on top of their obligations throughout the year.

MTD for Income Tax will apply from April 2026 for sole traders and landlords earning over £50,000, expanding to those earning over £30,000 in April 2027, and to those earning over £20,000 in April 2028.

What records must you keep under Making Tax Digital?

Making Tax Digital requires you to maintain complete and accurate digital records of your business finances.

This includes key information such as:

• Income from sales or services
• Business expenses
• Dates of transactions
• Total amounts received and spent

These records form the basis of your quarterly updates and final declaration.

Can you use Excel for Making Tax Digital spreadsheets?

Yes, you can use Excel for Making Tax Digital, but not on its own.

Excel can’t connect directly to HMRC, as it doesn’t have the built-in functionality required to submit tax data through HMRC’s secure systems. To remain compliant, Excel must be connected to bridging software or used alongside fully compatible accounting software.

This means Excel can still be used to store and organise your financial records, but another tool must handle the submission.

Why Excel alone isn’t MTD-compliant

MTD requires software to communicate directly with HMRC through an Application Programming Interface (API) connection. This allows tax data to be transferred securely and automatically.

Excel is a spreadsheet tool. While it’s excellent for calculations and record keeping, it can’t send information.

HMRC’s requirements include:

• Digital storage of records
• Digital transfer of data
• Direct submission through compatible software

Excel meets the first requirement, but not the second or third. Without additional software, Excel can’t complete MTD submissions.

What is bridging software, and how does it work?

Bridging software is the tool that acts as a secure connector between your spreadsheet and HMRC.

Instead of submitting your tax return manually, the bridging software reads data from your spreadsheet and sends it directly to HMRC in the correct format.

This process typically involves the following steps:

• You record your income and expenses in Excel.
• The bridging software connects to your spreadsheet.
• It extracts the required totals.
• It submits the information to HMRC digitally.

This creates a compliant digital link between your records and your submission. Keep in mind that copying and pasting numbers manually breaks the digital link and isn’t compliant with MTD rules.

What are digital links?

A digital link is any automated transfer of data between software. This includes connections such as:

• Linked spreadsheet cells
• Automated imports
• Formula-based transfers
• Software integrations

Digital links ensure that information flows automatically between systems without manual copying. They also improve accuracy by ensuring that submissions reflect your actual records.

Pros and cons of Excel for Making Tax Digital

Excel remains popular for good reasons. Many freelancers and sole traders already use spreadsheets to track their finances, and continuing with Excel can feel like the simplest option when preparing for MTD.

However, while Excel offers some clear advantages, it also has important limitations that can make compliance more difficult over time.

Understanding both sides can help you decide whether Excel is still the right tool for your business.

Excel pros

One of the biggest advantages of Excel is familiarity. It’s been widely used for decades, and many people already know how to create spreadsheets, enter data, and use basic formulas.

Excel is also highly flexible. You can customise your spreadsheet to suit your specific business needs, create your own expense categories, and build reports that reflect how you work. This level of control can be useful if your finances follow a structure that standard accounting software doesn’t match exactly.

Cost is another important benefit. Excel is often more affordable than dedicated accounting software, especially if you already have access to it through Microsoft Office. This can make it appealing for freelancers and sole traders who want to minimise expenses.

Finally, Excel gives you full visibility and control over your data. Every calculation is there, and you can adjust formulas or fix issues directly. For people who prefer a hands-on approach, this transparency can be reassuring.

These advantages make Excel a practical option for businesses with simple financial records and users who are comfortable managing spreadsheets themselves.

Excel cons

Despite these benefits, Excel has several limitations for MTD, and these become more significant as compliance requirements increase.

The most important limitation is that Excel can’t submit tax data directly to HMRC. This adds an extra step and makes the overall process more complex.

Excel also requires ongoing manual work. You must enter each transaction yourself, maintain accurate formulas, and regularly check that your totals are correct. This takes time and increases the risk of mistakes, especially as your business grows.

A simple formula error, missing transaction, or incorrect figure can lead to inaccurate tax submissions, which may cause compliance issues or penalties.

Another major limitation is the lack of automation. Excel can’t automatically import bank transactions, categorise expenses, or calculate your tax position in real time. This means you may not always have an up-to-date view of what you owe.

These limitations make Excel less efficient and more time-consuming than software designed specifically for MTD.

How modern software simplifies Making Tax Digital

Modern accounting software is designed to handle MTD through automation; instead of relying on manual spreadsheets and bridging tools, everything is done in one place.

With software built specifically for freelancers and sole traders, your records are created automatically as you work. When a client pays you, the transaction is recorded. When you spend money, it’s tracked instantly.

This approach provides several important benefits:

• Automatic digital record keeping
• Real-time tax estimates
• Direct submission to HMRC
• Reduced risk of errors
• Less manual admin

Excel vs compatible accounting software

Excel can handle record keeping, but accounting software can handle the entire process automatically.

The differences become clearer when comparing key features:

A simpler, FREE alternative to Excel for Making Tax Digital

While Excel can technically be used with bridging software, it was never designed for MTD. It requires manual work, additional tools, and careful maintenance.

ANNA is built specifically for freelancers and sole traders and is fully compatible with MTD. Because ANNA works automatically in the background, there’s no need to maintain spreadsheets or connect bridging software. Your records are created as you earn and spend, and your tax submissions are handled seamlessly.

ANNA offers free MTD for new and existing customers. When you open an ANNA account, we’ll prepare and submit your 2025/26 Self Assessment at no extra cost.

If you bypassed Excel and already filed your 2025/26 return using another MTD platform, ANNA will refund what you paid once you open an account.

With ANNA, you also get:

• Smart invoicing with automatic payment matching: Create, send, and chase invoices automatically, with incoming payments matched instantly.
• Built in UK business account: Send and receive payments, use cards, and manage transfers directly from your dedicated UK business account.
• Automated VAT returns with full Making Tax Digital compliance: Calculate and submit VAT returns automatically to HMRC, with no spreadsheets or bridging software required.
• Automated MTD for ITSA submissions: Calculate and submit quarterly updates and final declarations automatically, ensuring full MTD compliance.
• Automated Company Accounts and Corporation Tax filing: Calculate and file Company Accounts and Corporation Tax automatically, with no manual preparation needed.
• Automatic reminders so you never miss deadlines: Receive automatic reminders for important deadlines, helping you stay compliant and avoid penalties.
• 24/7 tax support whenever you need help: Access expert tax support anytime, with answers available whenever you need them.

This creates a radically simpler experience compared to Excel or traditional accounting tools.

Get started with ANNA today and focus on running your business – instead of managing spreadsheets or worrying about compliance.