FreeAgent vs Xero – Which Accounting Software Is Best?

freeagent vs xero which is best accounting software

Table of Contents

FreeAgent vs Xero

As Chartered Accountants, we regularly get asked about which cloud-based accounting system is the best for their business or situation. We have over ten years of experience in all the major online accounting software packages. We have formed some pretty clear opinions on the subject. We have settled on recommending Xero to all but the smallest of our clients.

When choosing between Xero vs FreeAgent, size matters. For micro businesses trading as a sole trader or a limited company, then Freeagent can be a good and possibly free option to satisfy all their accounting needs. However, if you are running a slightly larger company, we would recommend Xero as it is built to scale up.

Read on to find out how we rate these online accounting packages in terms of features, integrations, and pricing. The backstories of both companies are also informative as to what the target audience of each application is.

FreeAgent background

FreeAgent is close to our hearts. As Edinburgh Accountants, we have watched the business grow from a startup in the Morningside area of Edinburgh to the company that it is today with 260 staff.

They have a precise aim to target micro-businesses stating that:

“FreeAgent is an online money management and accounting tool intended for small businesses of up to 10 employees. This will include most kinds of freelancers, contractors, and consultants.”

The company was bought out in 2018 by The Royal Bank of Scotland (RBS), and the software is offered free to their customers. Recently Ed Molyneux, the original CEO, announced he is stepping down and mentions that over 100,000 businesses have used FreeAgent since it started in 2007.

Xero background

Compared to FreeAgent, Xero is a global monster. It was started in 2006 in Australia and has grown into a worldwide brand. In 2019 Xero announced that they have over 2 million subscribers across the world. Australia and New Zealand have historically had much higher use of cloud accounting than the rest of the world. This fast growth “down under” allowed Xero to grow its small business market and develop features faster than the global competition.

Xero was designed to integrate with other software from the start, which helped drive its rapid growth.

Xero and FreeAgent common features

Most modern online accounting software packages share some common features. Xero and FreeAgent are no different and their best features include:

  • Live bank feeds so bank transactions can be pulled automatically from the bank and a bank reconciliation carried out.
  • Standard accounting features such as invoicing, expense tracking, accounts receivable and accounts payable.
  • A mobile app to keep up with your accounts on the go.
  • Customer data is stored securely on the cloud. Both Companies offer 2 factor authentication to keep this data safe. Users can access their data from anywhere in the world where that they can get an internet connection.
  • Web based interface. There is no software to install locally.
  • Built in payroll meaning businesses can run their own payroll and have the system enter the correct accounting information in their ledgers.
  • Making Tax Digital VAT submissions meaning that businesses can submit their VAT returns electronically to HMRC. This is becoming mandatory for all VAT registered businesses soon.
  • Real time reporting on the business finances.
  • Easy collaboration with an accountant due to the fact that permission can be granted for access to external users.

Xero extra strengths

Where Xero comes into its own is when we start looking at features for slightly larger businesses. These are some of Xero’s particular strengths:

  • Xero has comprehensive Multi Currency support. This is a feature included in the Premium plan. Xero can process transactions in over 160 currencies. Xero can send invoices, quotes and purchase orders in a foreign currency, receive bills and payments and reconcile foreign currency transactions
  • Xero has comprehensive inventory management for up to 4000 products. These can be added to invoices, and stock management reports can be run.
  • One of Xero’s main strengths is its comprehensive integration with other software. Xero has the most integrations of any of the online accounting apps and even has its own version of the app store. The Xero App Marketplace where you can find payment apps, industry specific apps and just about anything else you can think of.
  • Xero purchased the Hubdoc app in 2018 and it is now bundled for free with Xero. Hubdoc is a great solution for managing all your financial documents. Hubdoc can automatically import all your financial documents for your business and export them into data you can use reducing manual data entry time.
  • Xero have just announced a powerful new tool called Xero Analytics Plus. Analytics Plus is the next evolution of the existing short-term cash flow and business snapshot features with greater customisation and more accurate projections. As part of this release Xero have updated the existing short-term cash flow and business snapshot tools into a free tool called Xero Analytics. Analytics plus can be used to predict cash flow up to 90 days ahead and test multiple scenarios.

FreeAgent extra strengths

FreeAgent is a great solution for very small businesses. In fact if you want to go it alone and live without an accountant then FreeAgent would be a good solution because of it’s built in features:

  • Unlike Xero FreeAgent can actually submit end of year filings to HMRC for your Company. For micro Companies (definition here) FreeAgent can submit Company Accounts and Corporation Tax Returns. It can also submit Self Assessment Tax Returns for the Directors.
  • For Sole Trader businesses FreeAgent can calculate the Profit or Loss and add this into a Self Assessment return and submit.
  • FreeAgent has a built in time tracking feature which is great for consultant type businesses. Timesheets can be prepared easily and converted into invoices. There is even a built in stopwatch timer to facilitate this.
  • Expenses management. Both FreeAgent and Xero have the facility to manage expense claims for Directors and Employees. However this is free with FreeAgent and a paid add-on with Xero.
  • FreeAgent users can get email support but they can also book a 20 minute support call from the website. Xero only offers email support.

Xero pricing

Xero works on a monthly subscription with no minimum contract. There is a 30 day free trial.

Up to date pricing can be found here.

There are 3 plans:

  • Starter: This is only suitable for a small business with low transaction numbers as it only allows 20 invoices and 5 supplier bills per month. However this may be suitable for a letting business or similar.
  • Standard: This is the main plan. It includes all the free functions of Xero and can deal with any level of transactions.
  • Premium: The premium plan is actually just the Standard plan with the addition of Multi Currency support. There is no benefit to upgrading to this unless you need this feature.

FreeAgent pricing

FreeAgent also works on a monthly subscription with no minimum contract. There is also a 30 day free trial. FreeAgent also has a 6 month half price offer.

Up to date pricing can be found here, however there is a free option! If you have a business current account with NatWest, Royal Bank of Scotland or Ulster Bank NI you can access the full version of FreeAgent completely free of charge! See the details here.

FreeAgent has 3 paid plans all of which include payroll, expenses, projects and time tracking which are extras on Xero:

  • Limited Company: This allows end of year accounts and corporation tax returns to be submitted as well as personal tax returns for the Directors.
  • Partnerships and LLPs: This allows self assessment returns to be prepared for the partners. An SA800 partnership return will need to be filed separately though.
  • Sole Trader: This allows calculation of profits and losses and filing of the self assessment return.

Xero vs FreeAgent user reviews

FreeAgent has 1615 reviews on Trustpilot and and an overall score of 4.7 which is graded as excellent. There are clearly a lot of delighted FreeAgent users and the support seems to be particularly valued. They have replied to 100% of their negative reviews so they do seem to be taking customer feedback seriously.

Xero has 3220 reviews on Trustpilot and an overall score of 4.1 which is rated by Trustpilot as great. Clearly most users are completely happy with the product however the negative reviews seem to revolve around the learning curve of the software and slow response to customer support queries.

Should I choose FreeAgent or Xero?

So when it comes down to a choice between FreeAgent vs Xero, there is a relatively simple choice to be made.

If you are a UK micro-business with less than ten employees, FreeAgent may be the best software for you. FreeAgent becomes even more compelling if you want to go it alone without the support of an accountant as it supports end-of-year filings. Furthermore, if you are a NatWest/RBS business banking customer, you can get the software for free.

FreeAgent bundles in many features as standard that cost extra on Xero; however, after the offers expire, the Limited Company package is £5 more expensive a month than the Xero plan at £29 plus VAT per month. If you need comprehensive multi-currency or inventory management, then Xero will be a best bet.

Xero comes into its own if you have a slightly larger business. The extensive list of integrations means that you can quickly build a complex custom system. The free Hubdoc software is perfect for ensuring you keep good financial records. The new analytics features show great potential for the future. If you are working with a Xero accountant like us, we will support you through the learning curve and make sure the system works how you want.

Xero Accountants

John McLaughlin Chartered Accountant Scotland

John McLaughlin

Sutherland Black are plain talking accountants based in Scotland. We’ll support your business growth and goals. Talk to John today for friendly yet expert accounting advice.

Book a FREE no obligation accounting consultation

Tell us about your business and accounting needs. We’ll explain everything in a jargon free way.

Our Key Locations

Would you like to know more about our range of accounting services? Contact us today for a free no obligation quote!