Excel vs Accounting Software for MTD Which Is Better in 2026?

As MTD for Income Tax approaches, taxpayers are deciding whether to:

• •Continue bookkeeping in Excel with bridging software, or
• •Switch to full accounting software

Both methods can comply with MTD, but they serve different needs.
This comparison helps you choose the right approach for 2026.

1. Excel Is Fully HMRC–Compliant for MTD

HMRC explicitly states that:

• •Digital records can be kept in spreadsheets
• •Bridging software is acceptable for digital submissions

This makes Excel a valid and reliable option.

2. Why Excel Works So Well for MTD

Easy to Use

No new system to learn.

Total Flexibility

You choose your own structure and layout.

Ideal for Bespoke VAT Calculations

Especially important for:

• •Margin schemes
• •Partial exemption
• •Multiple VAT schemes
• •Custom adjustments

No System Restrictions

Edit past periods, make adjustments and correct errors without limitations.
Excel suits businesses that value control and simplicity.

3. What Full Accounting Software Provides

Full bookkeeping platforms offer:

• •Invoicing
• •Automation
• •Reconciliation tools
• •Dashboards
• •Categorisation rules

These features can be useful for larger entities or those who need automated workflows.
But they are not required for MTD compliance.

4. Common Issues with Full Accounting Systems

Many users encounter:

Locked Periods

Difficult to adjust after closing.

Limited VAT Flexibility

Some VAT methods require workarounds.

Mandatory Coding Structures

System-imposed layouts.

Automation Errors

Rules can miscategorise transactions.

Higher Annual Costs

Subscription software typically costs several hundred pounds per year, even when used only for MTD.

For small businesses, this often adds expense without additional benefit.

5. Why Excel + MTD Sheets Is the Most Practical MTD Setup

Pairing Excel with MTD Sheets offers:

• •Full compliance
• •Flexible digital record keeping
• •Accurate handling of all VAT schemes
• •Extremely low submission costs
• •Simple, fast quarterly updates
• •No forced automation

This combination suits:

• •Sole traders
• •Landlords
• •Tradespeople
• •Small and micro businesses
• •Accountants

It delivers the benefits of a familiar workflow without the cost or restrictions of subscription software.

Final Verdict

For MTD alone:

Excel + MTD Sheets = The Simplest, Most Flexible and Most Cost-Effective Solution.