FreeAgent vs Xero (October 2026): an independent comparison for UK small businesses

FreeAgent or Xero: the verdict

FreeAgent vs Xero: comparison table

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FreeAgent vs Xero: what it costs per year

Pricing: FreeAgent charges by legal form, Xero by features and volume

FreeAgent's regular monthly prices, excluding 20 percent UK VAT and as of October 2026, are £33 for a limited company, £27 for a partnership or LLP, £19 for a sole trader and £10 for an unincorporated landlord. Annual billing costs £330, £270, £190 and £100, which is two months free. New customers see 50 percent off for the first six months on monthly billing and for the first year on annual billing. Payroll is included in every standard plan. Two add-ons exist: Smart Capture Unlimited at £5 per month and an Amazon integration at £6 per month.

Xero sells four UK plans, all excluding VAT: Ignite at £18, Grow at £39, Comprehensive at £55 and Ultimate at £70 per month. Ignite allows 20 invoices and quotes and 10 bills a month and shows a 30-day cash flow forecast. Grow removes the invoice and bill caps, extends the forecast to 60 days and includes payroll and expenses for 1 person. Comprehensive adds multiple currencies, a 90-day forecast and 5 payroll and expense users. Ultimate adds a 180-day forecast, 10 users and KPI and industry benchmark tools. New customers get 90 percent off for the first six months, so Grow costs £3.90 a month at the start. The discount does not cover add-ons.

The comparison is not like for like, because FreeAgent prices the person and Xero prices the feature set. A sole trader pays £19 at FreeAgent. At Xero the £18 Ignite plan is cheaper on paper but stops at 20 invoices and 10 bills a month, so a busier trader moves to Grow at £39, which is £20 more per month or £240 more per year. A limited company pays £33 at FreeAgent against £39 for Grow. The gap widens once you need a 90-day forecast, because Xero offers it only from Comprehensive at £55, while FreeAgent includes it in its single price.

Free route and contract terms: the bank decides at FreeAgent, notice rules at Xero

FreeAgent is free for customers with a NatWest, Royal Bank of Scotland or Ulster Bank business current account, for as long as they keep that account. Mettle customers also qualify if the Mettle account is their primary business account and shows at least one transaction a month. On the pricing page the Mettle route is listed for limited companies, sole traders and landlords, but not for partnerships and LLPs. Xero has no free plan and no bank route that we could find.

The free route has an owner behind it. The Royal Bank of Scotland bought FreeAgent in March 2018 for £53 million, according to Singer Capital Markets, after FreeAgent had been listed on London's AIM market since November 2016. FreeAgent says it has stayed operationally independent of the group. The practical effect is that your price depends on your bank. If you move your business account away from the NatWest family, you pay the regular price for your legal form.

Xero's terms renew automatically at the end of each billing period and ask for one month's advance notice to cancel. They state that no refund is due if you terminate. A 30-day free trial is listed on Xero's UK sign-up page, and promotional pricing cannot be combined with a trial. FreeAgent also offers a 30-day trial and says you can cancel at any time. Neither vendor publishes a multi-year minimum term on the pages we read, but FreeAgent's annual option is paid up front.

AI features: both read receipts, only Xero offers a chat assistant

FreeAgent's Smart Capture lets you photograph receipts and bills in the mobile app or upload PDFs and photos, one by one or in bulk. FreeAgent describes the result as AI-powered categorization plus an automatic match of the document to the relevant bank transaction. You approve the match. Ten captures per calendar month are included, and Smart Capture Unlimited costs £5 per month. A freelancer with a handful of receipts rarely hits the cap. A shop owner with daily till slips does.

For the bank feed, FreeAgent says its machine learning categorizes transactions automatically and learns from your earlier choices. It also explains new transactions based on previous descriptions, so a recurring software subscription needs only a glance. On the pages we read, FreeAgent has no chat assistant that answers questions about your numbers, and it has no separate AI price beyond Smart Capture Unlimited.

Xero's JAX chat is available on every plan at no extra charge. It answers questions with your Xero data and public web information and returns charts and tables. Xero says JAX chat does not use your data to train the language models and that its third-party providers do not retain data for training. Automatic bank reconciliation by JAX is included from Grow. On Ignite it is part of an optional AI Automate add-on, and the add-on price was not visible on the pages we could read. JAX combines four methods: your bank rules, matches with existing documents, how you reconciled similar items, and predictions based on how other Xero users handled similar transactions. It reconciles on its own only when it is highly confident, and otherwise flags the line for you. Smart document capture is listed on all plans.

In July 2026 the trade outlet IT Brief UK reported that Xero had added document capture, real-time bank matching, payment follow-up and bill protection to JAX, and listed VAT checking from bank statements, complex bank reconciliation, document chasing and Corporation Tax later in 2026 as planned. We count only the shipped items and treat the planned ones as unconfirmed. Neither vendor publishes error rates, so ask for a trial month with your own bank lines before you rely on either.

Making Tax Digital: both file to HMRC, and the thresholds fall in 2027 and 2028

Making Tax Digital for Income Tax applies to sole traders and landlords registered for Self Assessment whose qualifying income passes a threshold. GOV.UK sets three steps: above £50,000 you should have started on April 6, 2026, above £30,000 you start on April 6, 2027, and above £20,000 you start on April 6, 2028. You keep digital records in compatible software and send quarterly updates to HMRC. The guidance points to separate pages for exemptions and for how to work out qualifying income.

FreeAgent fills the quarterly update from the income and expenses you have already entered and lets you send it to HMRC in one click. Its support pages say updates fall due one month after the end of each quarter, and that accountants on its Practice Dashboard can file for several clients in one run. The Practice Dashboard is free for accountants and bookkeepers, who pay only for the client licences they add.

Independent UK guides such as ByteStart list Xero as software recognized by HMRC for the quarterly updates. Xero also files payroll through Real Time Information. Xero says about 250,000 accountants and bookkeepers use its partner program, so many UK practices already run clients on it. If you hand your books to an accountant, ask which of the two they work in before you compare prices. The software a practice already knows often decides the quality of the filing more than any feature list.

Where the products diverge: currency, payroll, forecasts and reach

Multi-currency is the clearest correction to a common assumption. Xero reserves it for Comprehensive at £55 and Ultimate at £70. FreeAgent's product pages describe foreign-currency invoices and estimates, foreign-currency bills, expenses in almost any currency and multi-currency bank accounts, with exchange rates from xe.com, and we found no plan restriction on those pages. A sole trader who invoices a client in euros therefore does not need Xero's upper plans. The invoicing details come from an older FreeAgent post and its support section, so confirm the current behavior in the trial.

Payroll differs in structure. FreeAgent includes payroll with Real Time Information filing in its standard plans. Xero counts people: Grow covers 1, Comprehensive 5 and Ultimate 10, and Ignite lists £1.50 per additional person. A business with 3 employees on Xero therefore needs Comprehensive or pays per head on a lower plan.

Xero is stronger on forecasts and connections. Its plans show 30, 60, 90 or 180 days of cash flow, against 90 days at FreeAgent, and it advertises more than 1,000 integrations through its app store. FreeAgent connects to all major UK banks through Open Banking feeds. Xero's subprocessor list names the bank feed aggregators Tink in the UK and Yodlee in the US.

Reach is the other split. Xero reported 4.92 million customers worldwide after its 2026 fiscal year, with 506,000 net additions, and bought the US bill payment platform Melio, according to The Motley Fool Australia. FreeAgent reports more than 250,000 small business customers and over 200 employees, and its pricing page lists only UK business types. If you expect to open a company abroad, Xero follows you. If your business stays in the UK, FreeAgent's narrower focus is not a handicap. Readers weighing Xero against a US-origin rival can read Xero vs QuickBooks Online.

Data hosting, UK GDPR and leaving: Ireland versus a US-heavy supplier list

FreeAgent says customer data sits in data centers in Ireland across several availability zones, encrypted with TLS 1.2 in transit and 256-bit AES at rest, with 2-step verification available. FreeAgent itself holds Cyber Essentials Plus. The ISO 27001, 27017 and 27018 standards it cites belong to the data centers, not to FreeAgent. Its data processing addendum is public. It allows processing outside the UK and European Economic Area under safeguards such as Standard Contractual Clauses, gives 30 days' notice of new subprocessors with 14 working days to object, and puts the cost of audits on the account holder. Its subprocessor list includes Amazon Web Services, Google and Digital Ocean in the US and EU, and NatWest Group in the UK and India for regulatory compliance.

Xero's security page lists ISO/IEC 27001:2022 certification, SOC 2 reports from independent audits and PCI DSS compliance. It does not state where data is hosted. The public data processing terms use the UK transfer addendum and EU Standard Contractual Clauses, promise 30 days' notice of subprocessor changes and offer the SOC 2 report on request. Xero keeps a copy of data for 7 years after termination, then deletes or returns it. The subprocessor list shows US cloud providers (Amazon Web Services, Microsoft Azure, Google Cloud, Snowflake), US conversational AI providers (Anthropic and OpenAI) and a UK data extraction provider, CloudFactory.

For a business in the EU that sends personal data to a UK vendor, the European Commission renewed its UK adequacy decisions on December 19, 2025, valid until December 27, 2031, according to eucrim. Transfers to the UK need no extra safeguard under that decision. The onward transfers to US subprocessors still deserve a line in your own records, and you should sign the vendor's addendum under Article 28 of the GDPR.

Leaving is easier to plan at FreeAgent. Its support pages describe an export of account data to a spreadsheet and of files to a zip folder, and FreeAgent keeps your data for one year after cancellation. At Xero, cancellation takes one month's notice, Xero's help center says there is no read-only plan, and the data processing terms set a 7-year retention. Export your reports and attachments before the notice ends in either case.

German companies should look elsewhere. Both products are built around UK tax rules, and we found no statement on the pages we read about German GoBD bookkeeping rules or a DATEV export. Our directory lists sevDesk and Lexware Office for that case.

Who should pick FreeAgent and who Xero

The bottom line

Check your bank first. If you hold a qualifying NatWest, RBS, Ulster Bank or Mettle account, FreeAgent costs nothing and covers payroll, UK tax filing and Making Tax Digital, which settles the choice for most sole traders and small limited companies. If you need long forecasts, a large app marketplace, a chat assistant or a ledger for trade abroad, Xero's upper plans justify the higher monthly price, as long as you check the one month notice and the plan limits. Run the 30-day trial of both with your own bank lines before you commit.