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A short white paper · 8 November 2026

Innocent spreadsheet mistakes, and how HMRC sees them

For sole traders who keep their own books in a spreadsheet. Every figure below is from the source listed at the end, read on the date above.

In short

If you are a sole trader and your accounts live in a spreadsheet you built yourself, Making Tax Digital changes two things.

First, your figures now go to HMRC four times a year, straight from that spreadsheet. There is no annual tidy-up with an accountant in between, unless you pay for one.

Second, a mistake that reaches HMRC is judged by HMRC. If it decides you did not take reasonable care, an honest error can carry a penalty of up to 30% of the tax involved, on top of the tax and interest. Whether you were careless is HMRC’s call in the first instance, not yours.

Thirty years of research says spreadsheet errors are common and quiet. A check before each update, which reads every row and asks you about the doubtful ones, is the cheapest insurance there is. That is the one thing NeuSheet does. It is not accounting software, it does not file anything, and it does not give tax advice.

1. What Making Tax Digital changes

Making Tax Digital for Income Tax started on 6 April 2026 for sole traders and landlords whose qualifying income was over £50,000 in the 2024 to 2025 tax year. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028, each tested on the tax year two years before.

Qualifying income overIn the tax yearUse it from
£50,0002024 to 20256 April 2026
£30,0002025 to 20266 April 2027
£20,0002026 to 20276 April 2028

Once you are in, you keep a digital record of every item of income and expense, with its amount, its date and its category, and you send HMRC a quarterly update of the totals. The updates are due by 7 August, 7 November, 7 February and 7 May. The tax return and the payment are still due by 31 January. Records must be kept for at least five years after that deadline.

You do not have to give up your spreadsheet. HMRC’s guidance describes bridging software: software that connects to records kept in a spreadsheet and makes the submission. The condition is that figures move by file or by linked cells, never by retyping or by copying and pasting them.

What changes is your exposure. Under the old regime your spreadsheet fed one return a year. Now it feeds four updates and a return, usually with nobody looking at it but you, and HMRC’s totals come straight from it. A formula that quietly broke in June reaches HMRC on 7 August.

One point is easy to misread. HMRC has said there are no penalties for a late quarterly update in the 2026 to 2027 tax year. That concession is about lateness. It does not change how HMRC treats a wrong figure once it is finalised in your tax return, which is what section 4 is about, and the quarterly totals are the figures that return is built from.

2. Spreadsheets go wrong quietly

Researchers have been auditing real business spreadsheets since the 1990s, and the answer has been consistent.

Raymond Panko’s 2005 summary of seven field audits found that 94% of the spreadsheets examined contained errors. A later study by Powell, Baker and Lawson at Dartmouth College applied a strict written audit protocol to 50 spreadsheets in everyday use at real organisations, covering 270,722 formulas. Depending on how strictly an error was defined, between 0.9% and 1.8% of formula cells were wrong, and 43 of the 50 spreadsheets contained at least one error. The three commonest kinds were a number typed into a formula instead of a cell reference, a formula pointing at the wrong cells, and a formula that did the wrong calculation.

Hermans and Murphy-Hill analysed 15,770 spreadsheets recovered from the Enron email archive, a far larger set of real company spreadsheets than researchers had been able to study before. Of those containing formulas, 24% contained at least one Excel error value such as #REF! or #DIV/0!, and each faulty cell fed, on average, 9.6 other formulas.

The famous cases are the same thing at scale. In 2020 Public Health England lost nearly 16,000 positive Covid test results because a file hit the row limit of an old spreadsheet file format. A widely cited 2010 economics paper on government debt and growth rested on a spreadsheet error; when it was corrected, the paper’s main finding was reversed.

What this means for a bookkeeping sheet is simple arithmetic. An error rate of about 1% sounds small. A sheet with a few hundred formulas therefore has, on average, a few wrong ones, and they do not announce themselves. A total that stops one row short of the entries you added last month. A date typed as 4/6 that the sheet reads as June. A formula dragged down a column but not far enough. A receipt entered twice, once from the bank statement and once from the paper copy. None of these produces an error message. The sheet looks fine. The total is wrong.

3. The mistakes HMRC actually finds

HMRC publishes an estimate of the tax gap, the difference between the tax due and the tax paid. For the 2024 to 2025 tax year it puts the gap at £59.2 billion, or 6.4% of all tax due. By cause, the largest slice is “failure to take reasonable care”, at 35%. Plain error, meaning mistakes made despite reasonable care, adds another 16%. Together they are over half the gap, more than evasion and avoidance combined. By customer group, small businesses account for 62% of the gap.

HMRC also runs random enquiries into Self Assessment returns. Among business returns, those from the self-employed and small partnerships, the share found to have under-declared tax rose from 26% in 2018 to 2019 to 42% in 2022 to 2023. Those enquiries find the mistakes that favour the taxpayer. Nobody counts the ones that go the other way, where an expense is missed and tax is overpaid.

In a sole trader’s own spreadsheet, the money usually goes wrong in a handful of places. These are the questions NeuSheet puts to its customers, each with a link to HMRC’s guidance on the point:

These are honest mistakes. The question is how HMRC classifies them.

4. How HMRC judges a mistake

When a return or an update turns out to be wrong, HMRC does not ask whether you are honest. It asks which of three behaviours produced the inaccuracy, and the penalty follows from the answer. The penalty is a percentage of the “potential lost revenue”, the extra tax due once the mistake is put right, and it is charged on top of that tax and interest.

BehaviourIf you tell HMRC firstIf HMRC finds it
Reasonable care takenNo penaltyNo penalty
Careless0% to 30%15% to 30%
Deliberate20% to 70%35% to 70%
Deliberate and concealed30% to 100%50% to 100%

The ranges are from HMRC’s factsheet on penalties for inaccuracies and its Compliance Handbook.

Who decides? HMRC’s officer does, during a compliance check. HMRC’s own factsheet says it will work with you to find out what caused the inaccuracy, which it calls the behaviour. You can appeal, within 30 days, to an independent tribunal. But by then HMRC’s assessment is on the table and you are arguing against it, and what you can show about your records and your checking is most of your case.

“Reasonable care” has no definition in the legislation. HMRC’s own manual describes the standard as what a prudent and reasonable person in your position would have done, allowing for your ability and circumstances. A self-employed person working alone is not held to the standard of a large company. HMRC expects you to keep records sufficient to make a correct return, and, where you are unsure of something, either to find out or to flag the uncertainty when you send the return.

The example HMRC’s manual gives of carelessness is worth reading twice. It describes a self-employed plumber who has no structured system for checking his records and therefore cannot be certain that the figures on his return are right. HMRC’s view is that this indicates a lack of reasonable care. Not fraud. Not even a particular mistake. The absence of a check.

There is a kinder side to the same rule. A penalty for a careless inaccuracy can be suspended for up to two years if HMRC can set conditions that will help you avoid the same mistake, typically about how you keep and check your records, and believes you can meet them. A deliberate penalty cannot be suspended.

So the practical question is not “am I honest?” but “could I show that I checked?”

5. What a check should do

The usual advice is to buy an accounting package, or to retype everything into someone else’s template. If your spreadsheet works for you, neither is necessary, and a template you fill in by hand is one more place for a copying error to creep in.

A check that would stand up to the question above does these things:

  1. Reads your sheet as it is. No template, no retyping.
  2. Accounts for every number on it. A number the check did not read is a number that might be missing from the total.
  3. Reads dates in one order, taken from the column itself. It does not assume day first, and it treats an impossible date as a question.
  4. Keeps every amount tied to the cell it came from, so the result can be traced back and nothing is counted twice.
  5. Asks, where only you know the answer. Was this for the business? How much of it? Will you keep and use it? Is this the same vehicle? A tool that decides these for you is guessing.
  6. Writes down every change and every answer, and leaves your own rows exactly as they were.
  7. Produces a file your bridging software reads, so the figures travel without being retyped.
  8. Leaves you with a record you can show. The tidy file is the smaller half of the value. The list of what was checked, what was asked and what you answered is the other half.

Whether that record meets HMRC’s standard in your case is for HMRC, or your accountant, to say. What it does is replace the plumber’s position, “I can’t be certain”, with a written answer to the question “what did you do to check?”

6. What NeuSheet does, and doesn’t

NeuSheet is a web app for sole traders who keep their accounts in their own spreadsheet. You upload the spreadsheet as it is. It reads every row, categorises each one under HMRC’s headings, and asks you about the ones in section 3 that only you can settle, with a link to HMRC’s guidance beside each question.

Before anything is delivered, every order is held to a written set of checks. Among them: every number on the sheet is accounted for; a column of dates is read in one order; each amount, date and direction comes from its own cell or from your answer; every row left out has a reason; income is never negative at a quarter end; and miles never become money in an update.

You get back two files. The first is your own workbook, with every original row and figure left where it was, plus two sheets of ours: one line for every entry saying what was done with it, and one listing what you were asked and what you answered. Cells with a formula are locked, without a password, so a worked-out figure cannot be typed over by accident. The second is the same figures laid out for bridging software, which sends them to HMRC, with nothing to retype.

The check is free, and you only pay when you download the finished files: £10 per spreadsheet. There is no account and no subscription. Your spreadsheet is deleted about a day after you download, and no copy is kept.

What NeuSheet is not:

The honest limit is this: no software can tell whether a cost was for your business. Only you can. What software can do is make sure the question is asked, the answer is recorded, and the arithmetic that follows from it is right. That is the difference between “I can’t be certain” and “here is what I checked”, and under Making Tax Digital it is a difference you will be asked about four times a year.

Sources

All read on 8 November 2026. HMRC’s pages are summarised above in our own words; the pages themselves are the authority.