Why Excel is Not Recommended for Making Tax Digital (MTD)

For many years, Microsoft Excel has been a go-to tool for UK businesses to manage VAT calculations and tax reporting. It’s flexible, affordable, and familiar. However, under HMRC’s Making Tax Digital (MTD) initiative, Excel is no longer recommended as a long-term solution for VAT submissions and digital record-keeping. While bridging software can still link Excel to HMRC’s systems, this approach carries significant drawbacks compared to using dedicated MTD-compliant accounting software.

Below, we explain why businesses should move away from Excel and adopt modern solutions to ensure compliance and efficiency.

Excel by itself does not meet HMRC’s MTD requirements. To file VAT returns, businesses must purchase and install additional bridging software to connect their spreadsheets with HMRC’s online system. This creates extra steps and complexity, increasing the risk of mistakes during the submission process.

By contrast, cloud accounting platforms like Xero, QuickBooks, and FreeAgent are fully approved by HMRC for MTD. These systems automatically store records digitally, maintain digital links, and allow direct submission of VAT returns. Choosing dedicated accounting software reduces the need for manual processes and ensures your business stays compliant without additional workarounds.

One of Excel’s biggest weaknesses is its reliance on manual input. Formula errors, copy-paste mistakes, or forgotten updates can quickly cause reporting inaccuracies. Under MTD, HMRC requires that there be a clear digital link between the records you keep and the data submitted for VAT returns. Manual adjustments in spreadsheets often break this digital link, leaving businesses vulnerable to non-compliance and potential penalties.

Accounting software significantly reduces these risks by automating calculations, storing transaction data directly, and maintaining a compliant digital trail. It also provides real-time financial reporting, making it easier for businesses to make informed decisions while remaining HMRC compliant.

Moving away from Excel isn’t just about compliance—it’s about efficiency and future-proofing your business. MTD-compliant software:

At Persona Finance, we support businesses in making the transition from Excel to fully MTD-compliant accounting software. We’ll help you choose the right platform, set it up correctly, and keep your records secure and compliant.

Yes, but not on its own. To remain compliant, you must use bridging software that connects Excel to HMRC’s online system. However, this is only a temporary solution and carries higher risks compared to using MTD-approved accounting software.

HMRC requires businesses to keep digital records and maintain a digital link between records and submissions. Excel relies on manual entry and copying, which can break compliance rules, meaning it cannot be used alone for MTD.

The main risks are manual errors, broken digital links, and non-compliance with HMRC rules. This could lead to inaccurate VAT returns or even penalties for businesses.

HMRC-approved software such as Xero, QuickBooks, or FreeAgent offers full compliance, digital record-keeping, and direct VAT submissions. These platforms are safer, faster, and more reliable than Excel with bridging tools.

We help businesses transition from Excel to MTD-compliant software, ensuring smooth setup, accurate record-keeping, and stress-free VAT submissions. Our team provides ongoing support so you can focus on growing your business, not worrying about compliance.

📞 Get in touch with Persona Finance today and let us simplify your Making Tax Digital journey with the right software solution.