Is Xero approved for MTD Income Tax?

Yes. Xero is fully HMRC-recognised software for Making Tax Digital for Income Tax (MTD ITSA). It can submit your quarterly updates and End of Period Statement (EOPS) directly to HMRC. You can verify this on the HMRC website.

Does Xero handle self-assessment?

Xero does not file a traditional Self Assessment tax return (SA100) directly, but under MTD for Income Tax the quarterly updates and EOPS replace the annual return for income from self-employment and property. For other income sources you may still need to file a final declaration via HMRC. Many Xero users work with an accountant for this step.

Is Xero good for sole traders?

Xero is well-suited to sole traders who invoice clients, have multiple income streams, or want to grow their business. It can feel over-engineered for very simple businesses — if you just want basic expense tracking and MTD submissions, FreeAgent may be a simpler fit. But for sole traders who want room to scale, Xero is excellent.

What's the cheapest Xero plan?

Xero's Starter plan starts at £16/month (prices may change — check Xero's website for current pricing). It includes invoicing, bank reconciliation, and MTD submissions. The main limitation on Starter is a cap on monthly invoices and bill entries, which won't affect most sole traders.

Can I try Xero for free?

Yes. Xero offers a 30-day free trial with no credit card required. This gives you full access to all features so you can assess whether it suits your workflow before committing.

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Software Review

Xero Review: MTD Software for Sole Traders (2025)

Last updated: 1 March 2025

Reviewed by SoleTraderGuide Editorial TeamMTD Software AnalystLast reviewed 1 March 2025

4.0

out of 5

Xero is a powerful, HMRC-recognised MTD platform that suits sole traders who need more than just the basics. Its bank feeds, invoicing, and integrations ecosystem are genuinely impressive — but it comes at a cost, and simpler alternatives may serve very small businesses better.

Best for: Growing sole traders who want powerful features
Starting price: From £16/month (Starter)

Pros and Cons

What we like

HMRC-recognised MTD software
Strong mobile app
Extensive integrations (800+ apps)
Automatic bank feeds
Good UK support

Watch out for

No free plan
Can feel complex for very small businesses
Pricing increases with features

Key Features

Here are the six features that matter most for sole traders using Xero for MTD.

Quarterly MTD Updates

Xero handles all four quarterly MTD Income Tax submissions automatically, pulling data straight from your bank feed and categorised transactions.

Bank Feeds

Connect your UK bank account directly. Transactions import daily and Xero learns your categorisation preferences over time to speed up reconciliation.

Invoicing

Create and send professional invoices, set up automatic payment reminders, and accept online payments. Ideal for sole traders who bill clients.

Expense Tracking

Log expenses on the go with the mobile app. Snap a photo of a receipt and Xero extracts the data automatically using OCR.

Reporting

Profit and loss reports, balance sheets, and cash flow statements are available at a click. Useful for understanding your business performance at a glance.

Mobile App

Xero's mobile app for iOS and Android is one of the best in the market — allowing invoicing, expense capture, and bank reconciliation on the go.

Is Xero Good for MTD Income Tax?

HMRC-recognised software

Xero is listed on HMRC's approved software list for Making Tax Digital for Income Tax Self Assessment (MTD ITSA). This means it can submit your quarterly updates and End of Period Statement directly to HMRC.

Xero was one of the earlier accounting platforms to gain HMRC recognition for MTD Income Tax. As a result, the MTD workflow is well-integrated — not bolted on as an afterthought. When you connect your bank account and categorise your income and expenses throughout the quarter, Xero compiles the quarterly update automatically.

The four quarterly deadlines (7 August, 7 November, 7 February, and 7 May) are visible in your Xero dashboard, and the software will prompt you when submissions are due. This is genuinely helpful for sole traders who are not naturally organised with their bookkeeping.

For the End of Period Statement (EOPS) — effectively your annual sign-off — Xero handles this too. The software compiles a summary of your year's figures and submits it to HMRC on your behalf. You then make any final adjustments via your final declaration.

The bank reconciliation feature is particularly valuable for MTD accuracy. By keeping your bank feed up to date and reconciling regularly, you reduce the risk of errors in your quarterly submissions. Xero's smart categorisation learns from your past behaviour, which speeds up the reconciliation process over time.

How Much Does Xero Cost?

Xero uses a tiered subscription model. All plans include MTD Income Tax submissions. Prices are listed excluding VAT.

Plan	Price	What's included
Starter	£16/month	Invoicing, bills, bank reconciliation, MTD submissions
Standard	£33/month	Everything in Starter + bulk reconciliation, multi-currency
Premium	£47/month	Everything in Standard + expense claims

Prices may change

Xero periodically adjusts its pricing. The figures above were correct at the time of writing but we recommend checking Xero's website for the most up-to-date prices before subscribing.

Most sole traders will find the Starter plan sufficient. The Standard and Premium plans are more relevant if you have employees or significant multi-currency transactions.

Start Xero free trial

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Who Xero is Best For

✓Established sole traders with regular invoicing needs
✓Sole traders who want strong accountant integrations
✓Those needing 800+ third-party app connections
✓Users who want a polished mobile experience
✓Businesses planning to grow beyond sole trader status

Who Should Look Elsewhere

✗Complete beginners who find accounting software intimidating
✗Sole traders on very tight budgets (under £10/month)
✗Those with very simple books who only need basic MTD filing
✗NatWest or RBS customers (FreeAgent is free for them)

Alternatives to Xero

QuickBooks

Similar pricing to Xero with more features at comparable tiers. Has a dedicated Self-Employed plan from £8/month.

Read review →

FreeAgent

Simpler and freelancer-focused. Free with qualifying NatWest/RBS accounts. Includes self-assessment filing.

Read review →

Sage

UK-native software with UK-based customer support. Good for sole traders who prefer domestic products.

Read review →

Frequently Asked Questions

Editorial note: This review was produced by the SoleTraderGuide editorial team. We assess software based on hands-on testing, published documentation, and user feedback. Our ratings are independent of commercial arrangements. We may earn a commission if you purchase via our links. Read our editorial policy.

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