Xero can handle the routine accounts of a contractor’s limited company: invoices, bank transactions, bills and VAT. Your accountant can work from the same records, without waiting for you to email a spreadsheet at the end of each quarter.
Xero offer: 90% off your plan for the first six months – for eligible new subscriptions; terms apply.
You may only send one or two invoices a month, but you’ll probably need payroll too. Check what’s included before choosing a plan, as the cheapest subscription may cost more once you add it.
Xero at a glance
| Standard monthly plans | Ignite £18; Grow £39; Comprehensive £55; Ultimate £70, excluding VAT |
|---|---|
| Bank feeds | Import transactions from supported accounts |
| Everyday accounts | Invoices, bills, bank reconciliation and financial reports |
| VAT | MTD VAT submissions included in these plans |
| Year-end filing | Company Accounts and Tax add-on available for suitable small companies |
The day-to-day work
Most contractor bookkeeping follows a fairly familiar pattern. An invoice goes to an agency or client, payment arrives in the company bank account, and the company pays its bills, salary and expenses.
Xero brings those records together. A bank feed imports the transactions; you match receipts to invoices and explain the payments. You can handle regular transactions with bank rules. The bank connection saves typing, but someone still has to check that the entries go to the right place.
Your business bank account needs a supported feed. Check that before you commit, particularly if you use more than one account or receive payments from overseas.
Invoices can include your payment details, and you can track outstanding amounts and send reminders. Online payment services are available too, with their own charges. An agency that pays by bank transfer may give you little reason to add card payments.
Reports draw on the software’s records. An unpaid invoice may appear as income before the cash reaches your bank; a bank balance can also include money needed for tax. Your accountant can explain the figures and correct entries without passing a succession of files back and forth.
Which plan would a contractor need?
Ignite permits 20 invoices and 10 bills a month. That may cover a company with one client, but count the bills as well as the invoices before choosing it.
Grow includes payroll for one person and expense claims for one user. Comprehensive includes five of each and multiple currencies; Ultimate includes ten and adds project time and cost tracking. Ignite lists payroll separately at £1.50 per person. Compare the ongoing total for the work your company actually does.
Xero currently advertises 90% off the plan price for six months, or a one-month-free route. The conditions differ. Check the price after the offer ends and which extras are charged separately.
Your contractor accountant may already supply Xero, or arrange a subscription for you. Ask before opening a separate paid account.
VAT, company accounts and tax returns
Xero supports Making Tax Digital for VAT. The return still depends on the bookkeeping: a missing purchase invoice or an incorrectly treated expense will not be fixed merely because the submission is electronic.
For year-end work, Xero now offers a Company Accounts and Tax add-on. It prepares FRS 105 micro-entity accounts and a Corporation Tax return from the company’s records, and files them with Companies House and HMRC. Xero lists it at £120 + VAT a year, on top of the subscription.
The add-on targets owner-managed companies with straightforward affairs. Its stated scope includes basic trading capital allowances and simple or no carried-forward losses. Check eligibility before assuming it will handle your company.
An accountant may instead use Xero Tax, the separate professional product available to UK Xero partners. Agree who will prepare and submit the accounts and returns. Access to the bookkeeping software doesn’t tell you which year-end services your accountant’s fee covers.
Xero or FreeAgent?
For a contractor who already has an accountant, their preferred software deserves considerable weight. They will know its reports, bank rules and year-end routines, and may have staff who deal with it all day.
Xero has a broad range of features and connected apps, including stock, payment and project tools. A consultancy with several staff or other trading activities may use more of them than a single-director company with one contract.
Our FreeAgent review explains why we have stayed with it for our own business. Check the cost of both through your accountant, including payroll, personal tax returns and company filing. Comparing subscription prices alone can miss quite a bit.
If you already have Xero, changing accountants doesn’t have to mean starting your books again. Read about what happens to Xero and FreeAgent when you switch firms, especially where the old accountant pays for the licence.
Before signing up, ask the accountant which plan they recommend and who will own and pay for the subscription. Then try it with the tasks you will repeat each month: an invoice, a few expenses and a bank reconciliation.