FreeAgent vs Xero Accounting Software

Xero and FreeAgent are two of the most popular online accounting systems in the UK – they are both excellent but in our opinion serve different types of businesses & clients, so we have outlined in this article the key differences between the systems to help you decide which is right for you. So here we go : FreeAgent vs Xero.







We’re doing things a bit upside down here by putting our summary at the top of the article, then you can choose whether to read through the detail below.

FreeAgent : it’s a much simpler system than Xero with a really easy and neat user interface. If you’re a freelancer, contractor or micro service business then this is the system for you. It’s been designed by non-accountants and has all the tools you need to keep on top of your finances. It deals with VAT returns and the Flat Rate Scheme really well and being able to file simple personal tax returns through the system is a nice bonus – at JF Financial we are FreeAgent accountants – we mainly work with modern freelancers and contractors and FreeAgent is the perfect system for our clients.

Xero : more complicated than FreeAgent but still pretty easy to use. It’s been built more like a traditional system like Sage or Quickbooks but for the modern cloud / SAAS world. If you run a small business that you are growing and you need decent reporting then Xero is for you.


FreeAgent has been around since 2007 and has it’s HQ in Edinburgh, Scotland. It’s mantra is “demystifying accounting” and they have retained a focus on keeping things simple and having strong customer service.

Xero has been around since 2006 – the business was started in New Zealand and has expanded rapidly to have a global presence in the USA, UK and Australia.

Why use a cloud accounting system?

As well as all the key features listed below one of the real benefits is the fact that your accountant and you are sharing the same system. You don’t have to email data files back and forth. If you have an issue with a VAT return then no problem, let your accountant know and they can log in to your system and deal with the issue. This allows you to have a more collaborative pro-active relationship with your accountant which is why we love working with clients in this way.

Bank transactions

It is in the area of bank reconciliation that cloud accounting products really started to shine – being able to bring your business bank transactions easily into your accounting system is something that used to be much trickier with traditional products such as Sage.

Both systems are pretty similar in the area of explaining bank transactions.

FreeAgent have recently improved their system so the explanations are all done on the same page rather than having to go into each transaction, see below screenshot, this makes it a little more like Xero. It is very easy to explain your bank transactions (generally FreeAgent is a very simple system to use but it comes at the expense of some of the functionality that Xero has).


Xero’s bank transactions are explained through the “reconcile” process. Xero will guess what it thinks the payments and receipts are for and you just need to click “OK” to accept the guess (see below). One very powerful feature is that you can setup “rules” , for example you could say that every time a payment is made and in the bank description it says “TFL” that it should always be allocated to “Travel costs”. If you have lots of bank transactions in your business this could be a real time saver.


Both systems allow you to setup bank feeds which will automatically bring in your bank transactions although depending on who you bank with will depend how seamless this is. You can also add your business credit cards and paypal accounts.

Summary – not much between them but if you have a lot of bank transactions then Xero’s powerful bank rules would be useful, but if you don’t then FreeAgent is a little simpler to use.


When it comes to raising invoices to clients there is not really much difference between the two systems. Both will allow you to generate an invoice and email it to your client directly through the system and both will allow you to create nice looking invoices.

In FreeAgent invoices are created by going to “Work” , “Invoicing” , “Add New Invoice” which then brings up the initial invoicing screen where you pick the client, date, payment terms etc.  – then click “Create New Invoice”


Then on the next screen you add your invoice lines and then you can either save the PDF or email it directly to your client through FreeAgent.


A very useful time saving feature in FreeAgent is the ability to setup a recurring invoice from an invoice you have raised – so if you are sending the same invoice each month to a client you can set this up to auto recur and email the client each month.

In Xero invoices are raised by going to “Accounts” , “Sales” then “New Invoice” which takes you to the invoice screen (below).


From here you just add your details and invoice lines in and when done click “Approve”. Again you can either email the invoice or download the PDF (below).


You can like with FreeAgent set the invoice up to “Repeat” and auto email to your client if you wish.


Summary – there really is very little difference between the two systems for invoicing 

Corporation Tax

FreeAgent has a great little feature in it in that it estimates your corporation tax position in real time. This is a “ballpark” estimate only but is very handy as it means you are factoring in corporation tax when assessing your businesses profits which is important when looking at dividends. This works very well for simple businesses such as contractors and freelancers – if your business is quite complicated then this estimate may not be that useful.


Xero doesn’t have this feature.

Summary – if you’re a freelancer, contractor or simple small business this is an awesome feature of FreeAgent, it’s basic but it does the job really well.

VAT Returns

Both systems allow you to file your VAT return with HMRC directly through the system which is a great time saving feature as well as a good control. If you use the VAT Flat Rate Scheme then FreeAgent is a little more intuitive at working with this as it has all the different categories in the system already, see below. Both systems create decent audit reports that allow you to drill into the transactions behind the VAT return although we’d say that Xero’s audit report is the better and more detailed of the two.

Screenshot 2015-04-03 07.54.52

The new VAT MOSS scheme is causing issues for many businesses – both systems have come up with a way to record transactions that are relevant to VAT MOSS but improvements need to be made in this new area.

Summary – not a lot of difference here – Xero’s VAT process is a little more detailed so useful if you’re a business that has a lot of transactions but if you’re a contractor or freelancer using the flat rate scheme then FreeAgent is better.

Quotes / estimates

Xero introduced a new quote process in 2015 that allow you to send quotes to potential clients and it also has a workflow process built in allowing customers to accept the quote. You can see your pipeline from your Sales Dashboard area, see below.

Screenshot 2015-04-03 08.02.48

In FreeAgent quotes are called “Estimates” although a little confusingly you have the option to create quotes and proposals as well which all essentially do the same thing. The estimates look nice , but the pipeline tracking is not as good as Xero. This comes back to the same recurring theme between the systems – if you value simplicity over depth then FreeAgent generally wins, but if you want more detailed features and reporting then Xero is often a better choice.

Screenshot 2015-04-03 08.07.27Screenshot 2015-04-03 08.08.07

Summary – not a lot of difference here.

Project tracking

FreeAgent has a simple way of tracking projects income and expenditure and you can also easily re-bill expenses to a client if needed. The reporting functionality is not that great to be honest but a very neat feature is that you can track your time spent on projects through the time tracking feature which if you bill clients based on time could be a great time saver You can track your time either by using the stopwatch function or by filling in a daily or weekly timeslip.

Screenshot 2015-04-04 07.40.58

Xero doesn’t have any project costing / reporting features as standard although it does have a feature called “tracking codes” but these are typically used for things like departments and locations.

Summary – as long as your project accounting needs are fairly simple then FreeAgent wins this one and the time tracking is another really cool feature.


An area where Xero is better than FreeAgent is with it’s reporting. FreeAgent has a generally more simplified experience than Xero which is often a good thing but for reporting Xero has more powerful options which could be a deal breaker if you need this level of reporting. It also exports all it’s reports into Excel in a neater way than FreeAgent. The choice of current reports can be seen below, if you want to put the reports in your quick reporting menu you just click the star.

Screenshot 2015-04-08 05.39.27

if you select the Profit and Loss report, for example, you then have choices on how to display this including date ranges:

Screenshot 2015-04-08 05.40.58

Summary – don’t get us wrong, FreeAgent lets you do reporting and it’s perfectly fine for most freelancers, contractors and micro businesses, but if you require a bit more depth to your reporting then Xero is the clear winner.

Add ons / partners

One of the big benefits of cloud accounting is the ability for systems to easily link in with other online products – for example you might want to be able to easily receive Stripe payments.

FreeAgent’s add ons / integration partners can be found HERE and Xero’s can be found HERE.

Summary – there is no clear winner here as it will depend which integration you’re looking for.


FreeAgent has long had the ability to run simple payrolls and they were one of the first to provide a payroll solution that was RTI compliant. This is a brilliant feature for most simple businesses.

Screenshot 2015-04-08 05.48.18

Xero has only very recently introduced their payroll system but it looks good – it is a shame it has taken them so long and this is worth touching on – generally FreeAgent is more UK focussed and more nimble to adapt to new changes such as RTI payroll reporting. As Xero are a global company it seems to take them a little longer to introduce UK specific features / improvements.

Screenshot 2015-04-08 05.49.24

Summary – Xero’s payroll system is so new that it’s too early to give an opinion on this one, so let’s call it a draw.

Personal Tax returns (self assessment)

Screenshot 2015-04-08 06.25.32

If you’re self employed or a director of a small limited company then FreeAgent will let you file your own personal tax return through the system to save you having to do it with HMRC online. This is a fantastic feature. It won’t work for everyone as it only deals with quite simple tax returns but it is a feature that Xero doesn’t have.

Summary – FreeAgent wins here, as long as your personal tax return is straight forward.


At the time of writing (April 2015) the prices of Xero range from £9 + VAT to £30 + VAT per month, whilst FreeAgent’s prices range from £19 + VAT to £29 + VAT per month. FreeAgent’s prices vary depending on your type of business (Sole Trader, Partnership, Limited Company) whereas Xero’s prices are based on the feature set e.g. number of invoices.

Summary – you’ll need to assess the price pages to see how much both systems will cost for your type of business and needs. 

Please note that as we are accredited FreeAgent accountants we are able to include FreeAgent for free as part of our monthly fixed fee accounting services.


Summary, again!

We summarised at the top of the article already but here it is in a one-liner : value simplicity then go for FreeAgent, have a growing / bigger business and need more functionality then go for Xero. If you’re a freelancer or contractor we would encourage you to choose FreeAgent.

Other Systems – other accounting systems are of course available but our experience is that these two are currently the best two online accounting systems on the market for small businesses, freelancers and contractors, however we have listed some other systems below should you wish to check them out: