FreeAgent vs Xero for Making Tax Digital

At a glance: FreeAgent versus Xero

FreeAgent and Xero are two prominent accounting software choices for sole traders and landlords preparing for Making Tax Digital (MTD) for Income Tax. Both products are recognised by HM Revenue and Customs (HMRC), allowing users to maintain digital accounting records, submit quarterly summaries of income and expenses, and file final declarations.

The single most important distinction between them is banking integration. FreeAgent is available completely free of charge to customers who maintain an eligible business current account with NatWest, Royal Bank of Scotland, Ulster Bank, or Mettle. Xero does not provide a free banking partnership or a permanent free tier. If you must pay standalone subscription fees, Xero offers a cheaper entry-level tier for non-VAT sole traders, while FreeAgent provides unlimited invoicing and built-in VAT support.

The free banking advantage: FreeAgent with NatWest and Mettle

FreeAgent is owned by the NatWest Group, allowing the bank to offer FreeAgent as an account benefit to its commercial customers. You can obtain a full FreeAgent subscription at zero software cost under two routes:

• NatWest, Royal Bank of Scotland, or Ulster Bank: FreeAgent remains free for as long as you maintain an eligible business current account with one of these institutions. Standard bank account conditions and fees apply.
• Mettle: Mettle is NatWest's digital business account with no monthly fee. You can receive FreeAgent free of charge as long as you make Mettle your primary business account in FreeAgent and complete at least one transaction through the account each month.

For a sole trader, this represents an ongoing cash saving of 190 to 228 pounds every year. For a landlord, it saves 100 to 120 pounds every year. The free banking version of FreeAgent is not a stripped-down demo: it includes full MTD for Income Tax submission, MTD for VAT submission, unlimited sales invoicing, automated bank feeds, and Self Assessment tax calculations.

Xero offers no equivalent arrangement. No UK retail bank includes a free Xero subscription. Every Xero subscriber must pay ongoing monthly fees.

Standalone pricing compared

If you do not hold a NatWest, Royal Bank of Scotland, Ulster Bank or Mettle account and do not wish to switch banks, you must purchase a direct subscription. Both providers offer introductory promotional discounts (such as FreeAgent's 50 per cent off for six months, or Xero's 90 per cent off for six months). Long-term budgeting must be based on standard regular prices.

FreeAgent standalone pricing

• FreeAgent Sole Trader: Standard price is 19 pounds a month excluding VAT (22.80 pounds a month including VAT) on monthly billing. On annual billing, the standard price is 190 pounds a year excluding VAT (228 pounds a year including VAT), which works out at 15.83 pounds a month excluding VAT. It includes full bookkeeping, MTD for Income Tax, MTD for VAT, unlimited invoicing, and direct Self Assessment submission.
• FreeAgent for Landlords: Standard price is 10 pounds a month excluding VAT (12 pounds a month including VAT) on monthly billing. On annual billing, the standard price is 100 pounds a year excluding VAT (120 pounds a year including VAT), which works out at 8.33 pounds a month excluding VAT. It is designed for unincorporated landlords letting UK residential property.

Xero standalone pricing

• Xero Simple: 7 pounds a month excluding VAT (8.40 pounds a month including VAT, totaling 100.80 pounds a year including VAT). Built for non-VAT registered sole traders and landlords. Includes MTD for Income Tax, bank feeds, Hubdoc receipt capture, and CIS calculations, but limits invoicing to 10 invoices and quotes per month.
• Xero Ignite: 18 pounds a month excluding VAT (21.60 pounds a month including VAT, totaling 259.20 pounds a year including VAT). Includes direct MTD for VAT submissions, up to 20 invoices, and up to 10 bills per month.
• Xero Grow: 39 pounds a month excluding VAT (46.80 pounds a month including VAT). Removes limits on invoices and bills.

Making Tax Digital for Income Tax compliance

Both FreeAgent and Xero are recognised by HMRC as compatible software for Making Tax Digital for Income Tax. Both allow sole traders and landlords to comply with the mandatory timetable:

• From 6th April 2026: Mandatory for sole traders and landlords with gross qualifying income over 50,000 pounds (based on the 2024 to 2025 Self Assessment return).
• From 6th April 2027: Mandatory for those with gross qualifying income over 30,000 pounds (based on the 2025 to 2026 Self Assessment return). Around 1,077,000 additional taxpayers will join in this second wave.
• From 6th April 2028: Mandatory for those with gross qualifying income over 20,000 pounds (based on the 2026 to 2027 Self Assessment return).

Under HMRC rules, qualifying income is gross turnover before expenses, not net profit. Sole traders and landlords must keep digital records and file four quarterly summaries followed by a final declaration by 31st January following the tax year end. Both FreeAgent and Xero connect directly to HMRC through secure digital interfaces.

Key feature differences

Sales invoicing and payment chasing

FreeAgent provides unlimited invoicing, estimate creation, and automatic email reminders across all plans. You can schedule automatic payment reminders before and after invoice due dates. In contrast, Xero restricts Simple users to 10 invoices and quotes a month, and Ignite users to 20 invoices a month. Sole traders sending twelve or fifteen invoices each month will outgrow Xero Simple immediately.

Value Added Tax (VAT) handling

Every FreeAgent subscription includes full Making Tax Digital for VAT compliance and direct electronic filing to HMRC. On Xero, VAT return filing is excluded from the Simple tier (7 pounds a month excluding VAT) and requires upgrading to Ignite at 18 pounds a month excluding VAT (259.20 pounds a year including VAT). For VAT-registered sole traders paying standalone prices, FreeAgent on an annual plan (190 pounds a year excluding VAT) is cheaper than Xero Ignite.

Receipt capture and extraction

Xero includes Hubdoc smart document capture across all plans at no extra charge, allowing unlimited receipt scans with automated text extraction. FreeAgent includes its Smart Capture tool, which provides automatic data extraction for up to 10 receipts and bills per month as standard. If you process more than 10 receipts each month in FreeAgent, an optional Smart Capture Unlimited add-on is available for 5 pounds a month excluding VAT (6 pounds a month including VAT).

Handling sole trader and landlord income together

If you run a sole trader trade and also let residential property, the two systems handle your affairs differently:

• FreeAgent: Requires two separate accounts. FreeAgent maintains separate product structures for trading businesses and residential property. While each account can be connected to the relevant bank account, you cannot combine sole trade and rental accounts into a single dashboard.
• Xero: Allows you to operate a single subscription organisation and use tracking categories to separate property income and expenses from trading operations, provided your overall business structure remains straightforward.

Plain verdicts by situation

• Customers of NatWest, Royal Bank of Scotland, Ulster Bank, or Mettle: Choose FreeAgent without hesitation. You receive complete MTD for Income Tax and VAT software for 0 pounds a year, saving up to 228 pounds annually.
• Non-VAT sole traders with light invoicing (not banking with NatWest): Choose Xero Simple. At 7 pounds a month excluding VAT (100.80 pounds a year including VAT), it costs less than half of standalone FreeAgent Sole Trader on monthly billing (273.60 pounds a year including VAT) or annual billing (228 pounds a year including VAT).
• VAT-registered sole traders paying standalone fees: Choose FreeAgent on an annual plan. At 190 pounds a year excluding VAT (228 pounds a year including VAT), it is cheaper than Xero Ignite (259.20 pounds a year including VAT) and removes all limits on invoice and bill creation.
• Landlords with rental property only (paying standalone fees): FreeAgent for Landlords costs 100 pounds a year excluding VAT on annual billing and includes dedicated property accounting and joint ownership split tools. Xero Simple costs 84 pounds a year excluding VAT (7 pounds a month) but includes general business tools with a 10-invoice limit.
• Sole traders who also own rental properties (paying standalone fees): Xero allows managing both streams within one organisation using tracking categories. FreeAgent requires two separate accounts and two subscriptions unless you qualify through free banking.

Questions people ask

How do I get FreeAgent for free?

You can get FreeAgent free of charge if you hold an eligible business current account with NatWest, Royal Bank of Scotland, or Ulster Bank, for as long as you retain the account. You can also get FreeAgent free by opening a Mettle business account and completing at least one transaction every month.

Is FreeAgent or Xero better for Making Tax Digital?

Both systems are recognised by HMRC for Making Tax Digital for Income Tax. If you qualify for FreeAgent through an eligible bank account, FreeAgent is the better option because it provides complete accounting software at zero cost. If you must pay standalone prices and do not need VAT filing or high invoice numbers, Xero Simple is cheaper at 7 pounds a month excluding VAT.

Does Xero offer a free plan for sole traders?

No. Xero does not provide a free plan and has no partnership with UK banks for free software. All Xero users must pay an ongoing monthly subscription fee.

Can FreeAgent handle both sole trader and property income in one account?

No. FreeAgent requires separate accounts for self-employment income and residential property income. If you operate as a sole trader and also let out rental property, you will need two separate FreeAgent accounts.

What are the invoice limits on Xero compared to FreeAgent?

FreeAgent includes unlimited invoicing and quotes on all plans. In contrast, Xero Simple restricts users to 10 invoices and quotes a month, and Xero Ignite restricts users to 20 invoices a month. Unlimited invoicing on Xero requires the Grow plan at 39 pounds a month excluding VAT.

Which software is better if I am VAT registered?

FreeAgent includes Making Tax Digital for VAT return submission on all plans, including its free bank bundle. On Xero, VAT submission requires the Ignite plan at 18 pounds a month excluding VAT (21.60 pounds including VAT). On standalone annual billing, FreeAgent Sole Trader works out at 15.83 pounds a month excluding VAT, which is cheaper than Xero Ignite and includes unlimited invoicing.

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Sources

• HM Revenue and Customs, Choose the right software for Making Tax Digital for Income Tax, checked 15th October 2026.
• HM Revenue and Customs, Find software that is compatible with Making Tax Digital for Income Tax, checked 15th October 2026.
• HM Revenue and Customs, Find out if and when you need to use Making Tax Digital for Income Tax, checked 15th October 2026.
• HM Revenue and Customs, Sole traders and landlords earning more than 30,000 pounds urged to act now, checked 15th October 2026.
• FreeAgent, FreeAgent pricing plans, checked 15th October 2026.
• FreeAgent, FreeAgent for Landlords, checked 15th October 2026.
• FreeAgent, FreeAgent with Mettle, checked 15th October 2026.
• FreeAgent, FreeAgent MTD for Income Tax, checked 15th October 2026.
• Xero UK, Xero UK pricing plans, checked 15th October 2026.
• Xero UK, Xero Simple plan details, checked 15th October 2026.