Zoho Books and Making Tax Digital — Complete UK Guide 2026

Making Tax Digital is now mandatory for VAT-registered UK businesses above the £90,000 threshold, and MTD for Income Tax (ITSA) rolls out from April 2026. Zoho Books is on HMRC's approved software list — but there's a difference between a system that's technically MTD-compatible and one that's correctly configured for your business. This guide covers the setup, the submission process, and the mistakes that trip up UK businesses.

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What Making Tax Digital Actually Requires

MTD for VAT requires businesses to:

1. Keep digital VAT records (no paper VAT ledgers)
2. Use HMRC-approved software to submit VAT returns directly — not manually logging onto the HMRC portal and typing figures in

MTD for Income Tax (rolling out April 2026) requires:

1. Quarterly digital updates to HMRC for income and expenses
2. Final declaration replacing the Self Assessment tax return
3. Compatible software that connects directly to HMRC's API

Zoho Books satisfies both requirements. It maintains digital records and submits directly to HMRC via their API — no bridging software needed.

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Setting Up Zoho Books for MTD VAT

Step 1: Enable VAT in Zoho Books

Go to Settings → Taxes → VAT Settings

Configure:

• VAT Registration Number: Your 9-digit VAT number
• VAT Scheme: Standard Rate (most businesses), Flat Rate Scheme, or Cash Accounting
• Return Period: Monthly, quarterly, or annual — must match your HMRC registration
• Accounting Basis: Invoice basis (default) or Cash Basis

Flat Rate Scheme: If you're on the FRS, set your flat rate percentage in Settings → Taxes → Flat Rate Scheme. Zoho Books calculates your FRS liability correctly — VAT on sales at the flat rate, rather than the output/input tax difference.

Step 2: Connect to HMRC (MTD Authorisation)

Go to Settings → Integrations → HMRC

Click Connect to HMRC — you'll be redirected to the HMRC government gateway to authorise Zoho Books to access your VAT records. This is a one-time authorisation that uses OAuth — Zoho Books never stores your HMRC credentials.

After authorisation, Zoho Books displays your open VAT obligations (the periods HMRC expects you to file) directly in the system.

Step 3: Configure Your VAT Codes

Zoho Books comes with standard UK VAT codes, but verify they're correct for your business:

| Code | Rate | Usage | |---|---|---| | Standard Rate | 20% | Most goods and services | | Reduced Rate | 5% | Energy, children's car seats, etc. | | Zero Rate | 0% | Food, books, children's clothing | | Exempt | — | Insurance, financial services, postal services | | Outside the Scope | — | Non-business expenses, wages |

If you have EU imports or exports post-Brexit, you'll also need to configure:

• Reverse Charge VAT for services imported from the EU
• Import VAT for goods imported from outside the UK (post-customs clearance)

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Filing a VAT Return via MTD

Once you've connected Zoho Books to HMRC and your transactions are recorded correctly, filing is straightforward:

1. Go to Accountant → VAT Returns
2. Zoho Books shows your open obligations from HMRC — click the period you're filing
3. Review the return figures — Box 1 (VAT due on sales), Box 4 (VAT reclaimed), Box 5 (net VAT to pay), and the turnover figures (Boxes 6–9)
4. Review the transactions included in each box by clicking the figure
5. Click Submit to HMRC

That's it. HMRC receives the return via the MTD API, and you get a confirmation receipt number in Zoho Books.

Before submitting, check:

• Have all bank transactions for the period been reconciled?
• Are there any transactions coded to the wrong VAT rate?
• Do the Box 6 (net sales) and Box 7 (net purchases) figures look reasonable?

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Common VAT Mistakes in Zoho Books

1. Wrong VAT treatment on expenses Business entertainment is blocked from VAT recovery (except staff-only events). Make sure meals and entertainment expenses use the correct "Blocked" VAT code, not Standard Rate.

2. Not claiming VAT on imports Post-Brexit, import VAT is payable on goods coming into the UK from the EU and elsewhere. If you're using Postponed VAT Accounting (PVA), Zoho Books needs to be configured to record the PVA entry correctly.

3. Flat Rate Scheme turnover includes VAT If you're on FRS, your flat rate is applied to VAT-inclusive turnover, not net turnover. Zoho Books handles this correctly when the FRS scheme is properly configured, but check your figures in the first return.

4. Capital goods scheme not set up If your business makes significant capital purchases (computers, equipment) above the CGS threshold, the Capital Goods Scheme applies. This isn't automatic — your accountant or bookkeeper needs to flag this during setup.

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MTD for Income Tax (from April 2026)

MTD ITSA applies to sole traders and landlords with income above £50,000 from April 2026 (£30,000 threshold from April 2027).

What it requires:

• Submit quarterly updates to HMRC covering income and expenses (due one month after each quarter end)
• Final declaration by 31 January following the tax year

How Zoho Books handles it: Zoho Books connects to HMRC's ITSA API. Income and expense records in Zoho Books are categorised to the relevant ITSA income sources (self-employment, property income). Quarterly submissions are generated from your records and submitted directly from the system.

Key difference from VAT MTD: ITSA requires your income categories to be correctly mapped to HMRC's categories. Getting this wrong means your quarterly updates have incorrect figures. Set this up with your accountant before the first submission.

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UK Bank Feed Integration

To make MTD efficient, you need bank feeds pulling transactions in automatically. Zoho Books supports bank feeds via Open Banking for:

• Barclays, HSBC, Lloyds, NatWest, Santander (major high street banks)
• Starling, Monzo, Tide, Revolut Business (challenger banks)
• Most business credit cards and Amex Business

Go to Banking → Add Bank Account → Connect via Open Banking. UK Open Banking uses the FCA-regulated API — your login credentials are entered directly with your bank, not stored in Zoho Books.

With bank feeds active, transactions appear in Zoho Books daily. You categorise and match them to invoices and bills — the system learns your patterns over time and suggests categorisations automatically.

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Working with Your UK Accountant

If your accountant is Xero or Sage-trained, introducing Zoho Books will require some onboarding. A few things to do:

Give them Accountant access: Settings → Users → Invite User → select "Accountant" role. Accountants get read and report access without being able to change settings.

Set up Chart of Accounts with them: Your accountant's chart of accounts preferences should be mapped in Zoho Books from the start — not retrofitted later.

Agree on nominal codes: UK accountants typically work with a standard chart of accounts. Make sure your Zoho Books chart of accounts uses the same nominal codes your accountant expects in their tax software.

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VoltVave implements Zoho Books for UK businesses with full MTD compliance — VAT and ITSA setup, HMRC connection, bank feed integration, and accountant access configuration. Get in touch for a free consultation.