Xero Accounting Software for Sole Traders: An Honest Review

Starting your own business as a sole trader is exciting, but it also comes with a lot of questions — especially when it comes to managing your finances. You’ve probably heard of Xero Accounting Software but may be unsure if it’s right for you, how it fits into your day-to-day finances, and whether it can actually make your tax return easier. And, of course, you’re wondering if it’s worth the monthly fee!

In this honest review, I’ll break down Xero’s features, pricing and benefits it brings to sole traders.

With nearly 10 years of experience using Xero as a Chartered Accountant and a business owner, I’ve seen firsthand how it can save time and reduce the headache of managing business finances. I’ll explain what Xero does and, just as importantly, what it doesn’t do so you can understand how it fits into your business and decide if Xero is the right tool to simplify your financial life.

What is Xero Accounting Software?

Xero is an online accounting software that helps sole traders, freelancers, and small businesses manage their business finances.

It automates key accounting tasks such as invoicing, expense tracking, and producing essential reports needed for filing your tax return – whether you DIY your taxes or use an accountant.

Do Sole Traders Need an Accounting Software?

As a sole trader, you’re legally required to track your income and expenses and declare them on a tax return (along with paying any tax you owe).

Read=> Self-Employed Tax: How It Works and What You Need to Know

If your tax affairs are fairly simple, you may prefer a bookkeeping spreadsheet,, but using automated software like Xero has significant benefits, especially when it comes to reducing errors and saving time.

There is currently no legal requirement to use an accounting software. However, starting in April 2026, many self-employed workers will be required to file quarterly tax returns using approved accounting software, like Xero, under the rules of Making Tax Digital.

Benefits of Xero For Sole Traders

As a sole trader, you’ll find Xero offers a host of features designed to simplify tracking your income and expenses. Here’s how Xero can help you manage your sole trader finances:

Invoicing

If you’re spending time creating invoices in Word and PDF-ing them, Xero can save you time. You can create and email professional invoices to your clients and customers. Then track who has paid you (or not!) through built-in reports and automate payment reminders in the system, helping you to stay on top of who owes you money.

Online Payments

You can accept credit card payments by adding a payment link to your invoices making it easier for people to pay you.

Bank Feeds

Sync your UK bank accounts with Xero, so transactions are automatically imported and categorised, saving you from manual data entry into a spreadsheet.

Xero’s bank feed feature is smart—it categorises your transactions based on your previous selections, so after the initial setup, it can automatically allocate regular expenses like subscriptions and income to the right categories. This means less manual input and fewer errors.

Quotes

Send quotes directly from Xero to your customers and then easily convert them into invoices without the need to re-input the same numbers.

Tax Return Numbers

Whilst Xero doesn’t file your tax return directly, it does ensure that you have all the numbers you need for your tax return in one easily accessible report so you’re organised and ready to go at tax time.

Expense Management

Track and categorise business expenses to maintain an accurate record of costs, with built-in reports to simplify tax filing.

Real-time financial data

Access your business’s financial data anywhere and anytime, thanks to Xero’s cloud-based nature.

Integration

Xero integrates with a wide variety of third-party applications, including payment processors like Stripe and CRM systems to help streamline more than just your business finances.

Xero Pricing: What to Expect

Xero offers different pricing plans with different levels of features, tailored to businesses at their varying stages: Ignite, Grow, Comprehensive and Ultimate:

Ignite (£16/month): designed for sole traders and small businesses starting out, this plan includes basic features like invoicing, bank reconciliation, and VAT returns. However, it limits you to 20 sales invoices and 10 purchase invoices per month.

Grow (£33/month): for businesses on the rise, this plan offers everything in the Ignite plan plus additional features like expense claims and multi-currency support.

Comprehensive (£47/month): A more advanced option for growing businesses, offering features like project tracking and advanced reporting.

Ultimate (£59/month): This plan is best for larger businesses, including payroll for up to 10 employees and advanced analytics.

Add ons:

• Expenses: £2.50/month for one user
• Projects: £5/month (for one user)

All plans have access to the Xero App Stores where you’ll find a range of third party apps that you can integrate with Xero. Although this may not be relevant to sole traders with relatively simple financial affairs, depending on your business you could find value in timesheet, project management and expenses apps.

Xero Pros

• Making Tax Digital Compliant: A must-have feature for sole traders as MTD becomes mandatory in 2026.
• 30-day free trial: Test the software risk-free before committing to a paid plan.
• Intuitive, user-friendly interface: Even if you’re not a tech expert, you’ll find Xero easy to navigate.
• Bank feed integration: Xero works with most UK banks for seamless transaction syncing.
• Xero grows with you: If you’re planning to take things beyond a solo business, Xero will scale with your business with flexible pricing plans and additional features like VAT, payroll and cashflow

Xero Cons

• Pricing: The basic plan starts at £16/month, making Xero one of the pricier options for sole trader accounting softwares.
• Foreign currency support: Only available on the Grow plan or higher.
• Limited customer support: You can only reach customer support via email or by submitting a question on their website (no live chat).
• No tax estimate feature: Xero doesn’t automatically estimate your tax bill, so you’ll need to calculate it manually or consult with an accountant.
• Need to learn a new software: Whilst this can feel overwhelming, it is inevitable with the regulations of Making Tax Digital.

Final Thoughts

While Xero might not be perfect, it really brings a lot to the table, especially for sole traders who want to simplify their accounting and save time.

If you’re ready to move away from spreadsheets and need something that helps automate invoicing, tracking expenses, and preparing for tax season, the monthly fee can definitely be worth it. With its handy features, easy cloud access, and the ability to keep you compliant with Making Tax Digital, Xero is a great option for self-employed folks who want to stay on top of their finances without the stress.

FAQs