Why Spreadsheets Are Becoming Obsolete Under Making Tax Digital (MTD) — And What This Means for the Self-Employed

At Arendelle, many new clients ask us the same question: “Why can’t I just keep using my spreadsheets?” It’s understandable—spreadsheets have been the go-to tool for managing finances for years. But with Making Tax Digital (MTD) for Income Tax starting from April 2026, spreadsheets will no longer be enough for most self-employed people and landlords.

Below, we explain why spreadsheets are becoming obsolete and how the changes will affect your Self Assessment tax returns.

What Is Making Tax Digital and Why Is It Important for the Self-Employed?

Making Tax Digital is HMRC’s initiative to modernise the UK tax system. From April 2026, self-employed individuals and landlords earning over £50,000 (£30,000 in 2027 & £20,000 in 2028) will need to:

• Keep digital records

• Use HMRC-approved accounting software

• Submit quarterly tax updates

• File an End of Period Statement (EOPS) and a Final Declaration

MTD aims to reduce errors and make tax reporting more accurate and efficient.

Why Spreadsheets No Longer Meet HMRC Requirements Under MTD

1. Spreadsheets Don’t Connect Directly to HMRC’s Digital System

MTD requires a digital link between your financial records and HMRC. Traditional spreadsheets can’t provide this connection without extra tools—and even then, compliance is uncertain.

2. Spreadsheets Increase the Risk of Errors and Incorrect Tax Returns

Copy-and-paste mistakes, broken formulas, or overwritten cells can all cause inaccuracies. MTD is designed to eliminate these risks.

3. Quarterly Reporting Under MTD Requires Automation

You’ll need to report your business figures every three months. Doing this manually from spreadsheets is time-consuming and increases the risk of errors.

4. Spreadsheets Cannot Provide the Required Audit Trail

MTD requires a clear, traceable digital record for every transaction. Spreadsheets don’t track changes automatically—making them unsuitable for compliant digital record-keeping.

What MTD for Income Tax Means for Self-Employed Individuals and Landlords

If you earn over £50,000 from self-employment or rental income, you must:

• Switch to MTD-compatible accounting software

• Keep all records digitally

• Submit quarterly updates through software

• Complete new year-end submissions

This marks a major shift from the annual Self Assessment model—and spreadsheets won’t meet the new requirements.

The Best Accounting Software for MTD Compliance: Why We Recommend FreeAgent

At Arendelle, we work with a range of cloud accounting tools, but we often recommend

FreeAgent because:

• It’s fully MTD-ready

• It connects directly to HMRC

• It links to your bank account for automated bookkeeping

• It categorises income and expenses automatically

• It’s extremely user-friendly for non-accountants

• Some clients get it free through certain bank accounts

For many self-employed clients, FreeAgent is a stress-free alternative to spreadsheets.

Why Many New Clients Ask: “Why Can’t I Just Use Spreadsheets?”

This is one of the most common questions we hear. The short answer: HMRC won’t accept spreadsheets as your primary record-keeping tool under MTD unless they are combined with complex bridging software—which is rarely worth the hassle.

Purpose-built accounting software is faster, easier, more secure, and fully compliant.

How to Prepare for Making Tax Digital Before April 2026

Switching early gives you time to:

• Get comfortable with new software

• Ensure your data is properly transferred

• Avoid last-minute stress

• Stay ahead of HMRC’s requirements

  
  

At Arendelle, we’re helping clients move to MTD-compliant software every day. If you’d like support choosing software or migrating your records, our team is here to help.