Can You Use Excel for MTD IT? What HMRC Actually Allows

If you're a sole trader or landlord who relies on Excel spreadsheets, you've probably heard about Making Tax Digital for Income Tax (MTD IT) coming in April 2026. The big question everyone's asking: Can I still use Excel?The answer is yes, you can—but only in combination with MTD-compatible software. Understanding what HMRC actually allows will help you make the right choice for your business.

HMRC's Official Position on Spreadsheets Under MTD IT

HMRC permits spreadsheets like Excel for MTD IT, but Excel on its own cannot submit information directly to HMRC. Spreadsheets lack the Application Programming Interface (API) connection required to communicate with HMRC's systems.

According to HMRC's official MTD IT guidance, you can use software that connects to your existing records, such as those held in spreadsheets through bridging software. The guidance explicitly states: "if you use spreadsheets to record income and expenses, bridging software can connect to them and make your submissions to HMRC."

This creates three viable options:

  1. Excel + Bridging Software – Keep your spreadsheets and use bridging software to submit to HMRC
  2. Excel + Full MTD Software – Import your Excel data into comprehensive MTD software (like TaxNav)
  3. API-Enabled Spreadsheets – Special Excel templates with built-in connections to HMRC (less common)

The critical requirement: no manual copying and pasting. All data transfers must happen electronically through what HMRC defines as "digital links." Manual re-entry of data from spreadsheets into HMRC systems will no longer be accepted.

The Compliance Requirements for MTD Income Tax

From April 2026, businesses earning over £50,000 from self-employment or property must:

  • Maintain digital records of all income and expenses
  • Submit quarterly updates to HMRC (within one month of each quarter end)
  • File a year-end tax return through MTD-compatible software
  • Maintain digital links throughout the entire process

The traditional method of manually entering figures into HMRC's online portal will be discontinued for those mandated into MTD. This represents a fundamental change in how self-employed individuals and landlords manage their tax obligations.

The phased implementation schedule:

  • April 2026: Qualifying income over £50,000
  • April 2027: Qualifying income over £30,000
  • April 2028: Qualifying income over £20,000

All dates and thresholds are confirmed in HMRC's official MTD IT collection.

Bridging Software: Current Status and Long-Term Viability

Bridging software remains an HMRC-approved solution for MTD IT compliance. Despite claims from some software vendors that bridging software will be discontinued, HMRC has confirmed it as a valid long-term option.

The HMRC guidance page lists bridging software as one of two main types of MTD-compatible software, describing it as "software that connects to your records" and confirming it "might be right for you if you want to keep using your current software and adapt your record keeping for Making Tax Digital for Income Tax."

All approved software, including bridging options, appears on HMRC's official recognised software list.

However, bridging software provides only the minimum functionality required for compliance. It does not include the additional features found in comprehensive MTD software.

Limitations of Excel-Based Systems for MTD IT

Spreadsheet systems combined with bridging software, whilst legally compliant, have inherent limitations:

Limited error prevention:

  • No automatic validation before submission
  • No deadline notification system
  • Manual calculations without built-in checks

Absence of efficiency features:

  • No automatic expense categorisation
  • No receipt storage or management
  • No bank feed integration requiring manual data entry
  • Limited capability for handling multiple income sources

Administrative burden:

  • Manual categorisation of all transactions
  • Separate management of quarterly data sets
  • Complete responsibility for submission preparation and timing

Financial risk from the new penalty structure: Under MTD IT's penalty system (detailed in HMRC's penalties guidance for MTD IT volunteers), late submissions accrue penalty points. For those submitting quarterly, after 4 points, businesses face a £200 penalty, plus £200 for each subsequent late submission.

Spreadsheet-based systems provide no automated safeguards against these penalties, placing the entire compliance burden on the taxpayer.

Full MTD Software Solutions: TaxNav Approach

Full MTD software like TaxNav addresses the limitations of bridging software whilst maintaining compatibility with existing Excel workflows.

Core compliance features:

Excel integration capability: Upon registration, users receive access to TaxNav-prepared Excel templates designed specifically for MTD IT compliance, making the transition even smoother for spreadsheet users. Join the Pilot →

HMRC recognition status: Listed on HMRC's 'Software Available Now' page, confirming full compliance with all MTD IT technical requirements.

Browser-based architecture: No installation required—accessible from any device with an internet connection, eliminating IT infrastructure requirements.

Automated compliance management: Handles digital record-keeping, quarterly submission preparation, deadline tracking, and year-end returns with automated digital link maintenance.

Enhanced data security: Includes encryption, two-factor authentication, and GDPR-compliant data handling.

Validation systems: Pre-submission error checking, automatic calculation verification, and alerts for incomplete information—designed to prevent penalties.

Tax planning functionality: Identifies potentially overlooked allowable expenses and deductions, with built-in guidance on capital allowances and other tax relief mechanisms.

Efficiency tools: Auto-categorisation, bulk data upload, receipt capture, and bank statement import reduce administrative time.

TaxNav represents a category of software that provides comprehensive MTD IT compliance whilst remaining accessible to businesses currently using spreadsheet-based systems.

Preparation Timeline for MTD IT Implementation

For businesses earning over £50,000 from self-employment or property, preparation should begin well before the April 2026 mandatory start date.

6+ months before mandate:

  • Calculate qualifying income (combined gross income from self-employment and property)
  • Assess current record-keeping systems against MTD requirements
  • Consider voluntary registration for the MTD pilot programme

3 months before mandate:

  • Select and implement MTD-compatible software
  • Transfer historical data into the new system
  • Establish regular data entry procedures
  • Configure deadline reminders

1 month before mandate:

  • Complete software registration with HMRC
  • Establish software-to-HMRC account linkage
  • Verify digital link functionality
  • Prepare initial quarterly data set

Exemption eligibility: Certain individuals may qualify for exemptions based on age, disability, religious reasons, or geographical location. Full details are available in HMRC's exemptions guidance.

Excel Compatibility and MTD IT Strategy

Excel remains compatible with MTD IT when used in conjunction with appropriate software. HMRC permits spreadsheets provided they connect to HMRC systems through digital links. Bridging software continues to be an approved solution.

However, compliance alone may not represent the optimal approach. Whilst bridging software meets legal requirements, it provides minimal functionality beyond basic submission capability. Comprehensive MTD software offers additional features including error prevention, tax optimisation, and administrative efficiency – all of which can reduce both compliance costs and tax liability.

For businesses evaluating their MTD IT strategy, the key considerations are:

  • Meeting HMRC's technical requirements
  • Minimising penalty risk through automated compliance
  • Reducing administrative burden
  • Identifying legitimate tax savings

With mandatory compliance beginning April 2026, businesses should evaluate their options and implement appropriate systems with adequate time for testing and adjustment.

Frequently Asked Questions

Q: Can I continue using my Excel spreadsheets?
A: Yes, provided you use MTD-compatible software (bridging software or comprehensive solutions like TaxNav) to submit to HMRC. Excel alone lacks the required API connectivity.

Q: When does MTD IT become mandatory for my business?
A: Mandatory start dates depend on qualifying income:

  • £50,000+: April 2026
  • £30,000-£50,000: April 2027
  • £20,000-£30,000: April 2028 (expected)

Q: Are physical receipts still required under MTD IT?
A: Yes. Digital record-keeping does not eliminate the requirement to retain original receipts. Digital storage is optional but recommended.

Q: What are the penalties for missed quarterly submissions?
A: MTD IT implements a points-based penalty system. Each late submission earns 1 point. After accumulating 4 points, businesses incur a £200 penalty, with an additional £200 for each subsequent late submission.

Q: Can an accountant or agent handle MTD IT compliance?
A: Yes. Authorised agents can manage MTD submissions on behalf of clients. The taxpayer retains ultimate responsibility for data accuracy and remains liable for any errors or omissions.

Get Started with TaxNav Today

Making Tax Digital for Income Tax is approaching fast. If you want to maintain your Excel workflow whilst ensuring full compliance and accessing professional tax optimisation features, TaxNav offers a practical solution.

  • Import your existing Excel data seamlessly
  • Automate quarterly submissions and deadline tracking
  • Identify tax deductions you might be missing
  • Keep you compliant without the complexity

Join the Pilot →

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