Xero is cloud accounting software that's HMRC-recognised for Making Tax Digital, with bank feeds, invoicing, VAT returns, payroll and smart receipt capture in one place. It suits UK sole traders, landlords and small businesses who want their books online and their returns submitted from the same system. Its four UK plans are Ignite, Grow, Comprehensive and Ultimate, and Xero says none of them charge per-user licence fees. As of October 2026, MTD for Income Tax is the reason many sole traders are choosing software now.
Accounting software is a decision you live with every week, so it's worth choosing for the work you do, not the advert. This review is built from Xero's UK home, plans, accounting software and Making Tax Digital pages, plus HMRC's guidance on choosing MTD software, all read as of October 2026. I haven't run a set of books through it for this page, so I've stuck to what Xero and HMRC say.
What Xero does day to day
Xero connects to your business bank accounts so transactions flow into your books automatically, then lets you reconcile them, send invoices and quotes, track bills and expenses and submit VAT returns. Its smart document capture reads the details from receipts and invoices you photograph, upload or email in. JAX, which Xero calls its AI finance partner, handles routine tasks and gives real-time insights. Xero also says it integrates with more than 1,000 apps and has 5 million customers worldwide.
The four UK plans in plain terms
| Plan | How Xero describes it | Worth knowing |
|---|---|---|
| Ignite | An easy financial foundation to track cash flow with the essentials | Includes auto-reconciling transactions |
| Grow | Goes beyond the basics with automation and performance dashboards | Adds invoices and quotes, bill tracking, payroll for 1 person and a 60 day cash flow forecast |
| Comprehensive | Tailored insights for greater control | Adds payroll for 5 people, a 90 day cash flow forecast and budgeting with smart suggestions |
| Ultimate | Advanced tools and analytics for a scaling business | Xero's top plan, for businesses that need deeper analytics |
Xero runs introductory offers on its UK plans, so check the plans page on the day you buy rather than relying on a number you saw months ago.
Why MTD for Income Tax matters
Xero's MTD page sets out the timetable as of October 2026: sole traders and landlords earning above 50,000 pounds must comply first, followed by those earning above 30,000 pounds, then those above 20,000 pounds in 2028. To meet the rules you keep digital records of all business income and expenses, send quarterly updates using HMRC-recognised software, and provide a final declaration by 31 January.
HMRC's own guidance adds two details worth knowing before you choose. You can only use one software product for each separate submission you make to HMRC, and if you're VAT registered you should check whether your software has HMRC Assist built in. If you get a share of profit from a partnership, your software must be able to report it on your return.
Questions to ask before you sign up
- Are you inside the MTD for Income Tax timetable? If so, confirm the plan you choose covers quarterly updates and the final declaration.
- How many people need payroll? Grow covers 1 person and Comprehensive covers 5.
- Will your accountant work in Xero? Many do, and shared access saves you exporting files.
- Which apps must connect? Check Xero's app directory for your payment, stock or point of sale tools.
- Do you want online payments on invoices? Xero connects to Stripe and GoCardless for card and direct debit.
If you're comparing tools, my roundup of accounting software tools covers the alternatives, and this guide to bookkeeping software for small businesses helps if you only need the basics.
My verdict on Xero
For a UK small business or sole trader heading into MTD for Income Tax, Xero is a strong candidate: it's HMRC-recognised, connects to your bank and keeps invoicing, VAT and payroll in one place. Choose the plan by the features you'll use every month, not the one with the longest list, and move up when payroll or forecasting needs grow. Ask your accountant before you start, because the software they already use can save you both time.
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Frequently asked questions
Is Xero recognised by HMRC?
Yes. Xero says it's HMRC-recognised and MTD-compliant software for VAT and for MTD for Income Tax.
What are Xero's UK plans?
Xero's UK plans are Ignite, Grow, Comprehensive and Ultimate. Xero says there are no per-user licence fees and you can upgrade your plan at any time.
Does Xero include payroll?
Xero's plans page lists payroll for 1 person on Grow and payroll for 5 people on Comprehensive, as of October 2026.
Who needs MTD for Income Tax?
As of October 2026, Xero's MTD page says sole traders and landlords earning above 50,000 pounds must comply first, followed by those above 30,000 pounds and then those above 20,000 pounds in 2028.
Can I use two software products for MTD?
HMRC's guidance says you can only use one software product for each separate submission you need to make to HMRC.
