Choosing Your Xero Plan
Xero offers three pricing plans in the UK: Starter, Standard, and Premium. The main differences are how many invoices and bills you can process per month and whether you get multi-currency support.
- Starter – 20 invoices and 5 bills per month. Fine for freelancers with few clients.
- Standard – unlimited invoices and bills. This is what most UK small businesses need to use Xero effectively.
- Premium – adds multi-currency and the expenses app. Necessary if you invoice in euros or dollars.
Start with Standard if you’re unsure. You can upgrade later without losing any data. Xero runs regular discounts for new sign-ups – usually 50-75% off the first few months.
Creating Your Xero Organisation
After signing up, Xero asks you to create an “organisation” – this is your business entity. Enter your business name, registered address, and industry. For UK companies, add your company registration number and VAT number.
Set your financial year end date. Most UK limited companies use 31 March or 31 December. Check your Companies House filing for your accounting reference date if you’re not sure.
Select your VAT scheme:
- Standard VAT – most common. You charge VAT on invoices and reclaim it on expenses.
- Flat Rate Scheme – pay HMRC a fixed percentage of gross turnover. Simpler but often less beneficial.
- Cash Accounting – VAT is due when you receive or make payment, not when you issue an invoice. Better for cash flow.
Connecting Your Bank Account
This is the most important setup task. Go to Accounting > Bank accounts > Add bank account. Search for your bank and follow the connection process. Xero supports automatic feeds from virtually every UK bank:
- Barclays, HSBC, Lloyds, NatWest, Santander
- Starling, Monzo, Tide, Revolut
- Metro Bank, TSB, Co-operative Bank
Once connected, transactions flow into Xero automatically within 24 hours. You can connect multiple bank accounts, credit cards, and PayPal. Each account shows its real-time balance on your Xero dashboard.
Customising Your Chart of Accounts
Xero comes with a default UK chart of accounts that works for most business types. Before you start entering transactions, review it and make adjustments:
- Add accounts for income or expense categories specific to your business. A web agency might add “Hosting costs”. A restaurant might add “Food costs”.
- Archive accounts you’ll never use. No need to delete – archiving hides them from dropdown menus.
- Don’t rename system accounts like “Accounts Receivable” or “VAT”. Xero’s reporting and finance features rely on these.
Setting Up Invoice Templates
Go to Settings > Invoice settings to customise your invoices. Upload your logo, set payment terms (14 or 30 days is standard in the UK), and add your bank details so clients know where to pay.
You can also set up custom branding – colours, fonts, and footer text. A professional invoice template matters when you’re sending invoices to larger companies. Set up your default payment instructions and connect a payment app like Stripe or GoCardless so clients can pay online.
Adding Users and Your Accountant
If other people need access to your Xero account – a bookkeeper, business partner, or office manager – add them under Settings > Users. Each user gets their own login with role-based permissions.
For your accountant or bookkeeper, select the Adviser role. This gives them full visibility of your finance data without the ability to manage users or delete the organisation. See our guide to adding your accountant to Xero for the step-by-step process.
Configuring VAT and Making Tax Digital
If you’re VAT-registered, go to Accounting > Advanced > Financial settings and enter your VAT registration number and scheme. Then connect to HMRC’s Making Tax Digital gateway through Accounting > Reports > VAT Return.
Xero is HMRC-recognised for MTD. Once connected, you can file your VAT returns directly from Xero without any other software. The connection process requires your Government Gateway credentials and takes about 5 minutes.
Setting Up Payroll
If you have employees, Xero’s payroll feature handles RTI submissions to HMRC, pension auto-enrolment, and payslip generation. It’s included in Standard and Premium plans.
Go to Payroll > Settings to enter your PAYE reference, Accounts Office reference, and pension provider details. Add each employee with their tax code, NI category, and salary. Xero’s AI-powered calculations handle tax, NI, pension contributions, and student loan deductions automatically. Need help with payroll setup?
Install the Xero App
Download the Xero app on your phone (iOS and Android). The mobile app lets you reconcile bank transactions, create invoices, and snap receipt photos on the go. The app uses AI to read receipt details and creates draft expense entries automatically.
You can also browse the Xero App Store to find integrations for your business – CRM tools, inventory management, project tracking, and more. Each app connects to your Xero organisation and syncs data automatically.
Day-One Setup Checklist
Before you start using Xero for your business, make sure you’ve completed these tasks:
- Bank account connected and pulling in transactions
- Chart of accounts reviewed and customised
- Invoice template branded with your logo and payment details
- VAT settings configured (if VAT-registered)
- Accountant or bookkeeper invited with Adviser access
- Opening balances entered and verified (if migrating from another system)
- Contacts imported (customers and suppliers)
Once done, start by reconciling your bank feed and creating your first invoice. The sooner you build a daily habit of reconciling transactions, the easier Xero becomes. Your balance sheet and finance reports stay accurate when you reconcile regularly.
If you’d rather have someone handle the setup, JacRox offers Xero setup and onboarding as part of our accounting service. We’ll have you ready to use Xero in a single day.
