FreeAgent vs Xero for sole traders and small limited companies.

The short answer

FreeAgent is built around the owner of a small business. Its plans are split by business type, and its tax features follow the sole trader or the director through to their returns. Xero is built around the business and the people who work on its books. Its plans are split by how much the business does, and features such as multi-currency and project tracking sit on the higher plans.

Neither is the right answer for everyone. A one-person business that wants its tax position in one place will often find FreeAgent a natural fit. A company with staff, several bank accounts, foreign currency or a long list of linked apps will often lean towards Xero.

We do not give subscription prices here. They change often, so check each vendor's pricing page before you decide.

What both packages do

The everyday jobs are covered by both. Each one lets you:

• Connect your bank. Transactions flow in from your business bank accounts so they can be matched and coded.
• Send invoices. Both send invoices and automatic payment reminders.
• Record expenses and mileage. FreeAgent includes this, with a mobile app. Xero adds expense and mileage claims from its Grow plan.
• Submit VAT returns. Both say they file Making Tax Digital VAT returns to HMRC.
• Prepare for Making Tax Digital for Income Tax. Xero describes itself as "MTD for Income Tax ready". FreeAgent lists MTD for Income Tax on its sole trader and landlord plans.
• Run payroll. Both include payroll features.
• Show reports. Both build key reports automatically and have a dashboard showing how the business is doing.

How FreeAgent splits its plans

FreeAgent's plans are organised by business type: limited company, partnership or LLP, sole trader and landlord. What you get depends on which one you are.

• Sole trader. The daily admin tools, plus MTD for Income Tax, VAT and Self Assessment.
• Limited company. The same daily admin, plus VAT, Self Assessment and end-of-year filing. FreeAgent says it can generate final accounts and Corporation Tax returns data.
• Landlord. Property finances, MTD for Income Tax, VAT and Self Assessment, without payroll.

Two other points stand out. First, FreeAgent says it "auto-populates most of your tax return" and lets you file Self Assessment directly to HMRC. Second, every business plan includes a Tax Timeline, so you can see what you owe and when it is due. That helps a sole trader or a director who also files a personal return.

FreeAgent also says that some business bank customers get access at no charge. Its pricing page names NatWest, Royal Bank of Scotland and Ulster Bank business current accounts, and Mettle, each with conditions. If you already bank with one of these, check the current terms on FreeAgent's site.

One limit to note: for sole traders and partnerships using the cash basis, FreeAgent says the account will not include stock or payroll features.

How Xero splits its plans

Xero's UK plans are Ignite, Grow, Comprehensive and Ultimate. They are the same whatever your business type. The plans differ by volume and depth rather than by who you are.

• Every plan. Bank reconciliation, smart document capture, VAT returns, MTD for Income Tax, and CIS calculations and reports for subcontractors.
• Entry plan. Ignite limits how many invoices and bills you can enter each month.
• Middle plans. Grow adds automated bill entry and expense claims for 1 user. Comprehensive adds multi-currency, budgets and expense claims for 5 users.
• Top plan. Ultimate adds project tracking for up to 10 users, KPIs and benchmarking.

Xero says it integrates with "1000+ apps" through its app store. It also says you can give your accountant or bookkeeper access at no extra cost. On its accounting software page, Xero does not say it files Self Assessment or Corporation Tax returns as standard. Company accounts and tax is listed as an optional add-on.

Feature by feature

• Plan structure. FreeAgent: by business type. Xero: by volume and depth of features.
• Self Assessment. FreeAgent: prepares and files to HMRC. Xero: not stated as standard on its accounting software page.
• Year-end accounts and Corporation Tax. FreeAgent: limited company plan includes end-of-year filing. Xero: optional add-on.
• Multi-currency. FreeAgent: not mentioned on its features or pricing pages, so check with them. Xero: Comprehensive and Ultimate plans.
• CIS. FreeAgent: listed in its accountant features. Xero: subcontractor calculations on every plan, contractor returns an optional add-on.
• Projects and time. FreeAgent: projects and time tracking on its business plans. Xero: project tracking on Ultimate.
• Linked apps. FreeAgent: integration partners. Xero: an app store of 1000+ apps.
• Bank deals. FreeAgent: free access through certain UK banks, with conditions. Xero: none stated.

Which suits which kind of business

Sole traders

FreeAgent tends to suit a sole trader who wants one place for their books and their tax. It carries figures through to the Self Assessment return.

Sole traders and landlords with qualifying income over £50,000 in 2024/25 should have started using Making Tax Digital for Income Tax from 6 April 2026. Those over £30,000 in 2025/26 will need to use it from 6 April 2027, and those over £20,000 in 2026/27 from 6 April 2028. Both packages say they support it. The difference is whether you want the final return in the same system.

Xero can suit a growing sole trader who takes on staff, deals in foreign currency or already uses apps that link to Xero.

Small limited companies

For a one or two director company with simple trading, FreeAgent's limited company plan covers the books, payroll and the year-end data in one place. The director's personal return can sit alongside it.

Xero tends to suit a company with more moving parts: several bank accounts, staff claiming expenses, foreign currency invoices, or a need for budgets and dashboards. It is also common where an accountant prepares the year-end accounts in their own software.

Whichever you choose, the company's deadlines are the same. A private limited company usually files its accounts with Companies House 9 months after its financial year ends. The Company Tax Return is usually due 12 months after the end of the accounting period, and the Corporation Tax bill is usually due 9 months and 1 day after it.

Construction businesses

If you work under the Construction Industry Scheme, check exactly what each package does for you. Xero says it handles subcontractor calculations on every plan, with contractor returns as an add-on. FreeAgent lists CIS among its accountant features. Contractors must send their monthly return to HMRC by the 19th of every month following the last tax month, so make sure the software you pick can produce it.

Things to check before you decide

• Does your bank connect to the software, and do you qualify for any free access through your bank?
• Are you VAT registered, or close to the £90,000 taxable turnover threshold?
• Do you invoice or pay in foreign currencies?
• How many people need to log in, claim expenses or be paid through payroll?
• Do you want Self Assessment or year-end filing inside the same package, or will your accountant handle it?
• Which other apps do you rely on, such as receipt capture, ecommerce or point of sale?

FreeAgent offers a 30-day free trial, and Xero offers a first month free to try it. Run a normal week of your own transactions through each before you commit.

Switching between them

Moving between them is possible, but it takes care. Opening balances, open invoices and bills, and VAT history must come across correctly. The cleanest point to switch is usually the start of a financial year or a VAT quarter. Reconcile the old books first.

The software is your choice

We work in FreeAgent, Xero and the other main packages, so we do not mind which one you use. Pick the one that fits how your business runs. If you already use one and it works, there is usually no reason to change.

See how we work with each: FreeAgent bookkeeping and Xero bookkeeping. For a wider comparison, read Xero vs QuickBooks or see all the software we work in.