Sage and Xero are the two most widely used cloud accounting platforms for UK small businesses. Both handle invoicing, bank reconciliation, VAT returns, and Making Tax Digital compliance. Both have mobile apps. Both connect with accountants. But they are built on different philosophies, priced differently, and designed for different types of business — and choosing the wrong one can mean overpaying for features you never use, or realising six months in that something critical is missing.

This guide compares the two platforms across every dimension that matters: pricing, payroll, CIS, bank reconciliation, VAT, AI, reporting, integrations, support, and actual monthly costs at different business sizes. The goal is not to declare an arbitrary winner — it is to show you exactly where each platform is stronger so you can match the right one to your business.

Pricing Comparison

Both platforms use monthly subscriptions, but the structures differ significantly — particularly in what is included at each tier and how costs scale as your business grows.

Sage Accounting pricing

Plan	Monthly Price (excl. VAT)	Users	Payroll Included	Key Features
Start	£18/mo	1	No	Invoicing, bank feeds, VAT, MTD, Copilot AI
Standard	£39/mo	3	Yes — included	+ CIS, payroll, cash flow forecasting, advanced reports, auto receipts
Plus	£59/mo	Unlimited	Yes — included	+ Multi-currency, inventory, budgets, unlimited users

Sage also offers a completely free Sole Trader plan for non-VAT-registered self-employed users. Additionally, Sage is currently running a promotional offer of 90% off for the first six months across all paid plans — bringing the Start plan down to just £1.80 per month temporarily.

Xero pricing

Plan	Monthly Price (excl. VAT)	Users	Payroll Included	Key Features
Ignite	£16/mo	1	No — add-on £1.50/employee	20 invoices/mo, 10 bills/mo, bank feeds, basic reports
Grow	£37/mo	1 (+£2.50/extra)	1 employee included (+£1.50/extra)	Unlimited invoices/bills, auto-reconcile, dashboards
Comprehensive	£50/mo	5 (+£2.50/extra)	5 employees included (+£1.50/extra)	+ Multi-currency, bulk reconciliation, 90-day forecast
Ultimate	£65/mo	10 (+£2.50/extra)	10 employees included (+£1/extra)	+ Analytics, 180-day forecast, project tracking

Xero's entry price is £2 lower than Sage's Start plan. However, the Ignite plan has hard caps — only 20 invoices and 10 bills per month. Once you need unlimited invoicing, payroll, and multi-user access, Xero's cost climbs quickly due to per-user and per-employee add-on charges.

Key Takeaway

Sage's pricing is flat and predictable. The Standard plan at £39/month includes full payroll for unlimited employees with no per-head charges. Xero's per-employee pricing model means costs increase as your team grows — and at scale, the difference is substantial.

What You Actually Pay: Real Costs by Business Size

Advertised prices rarely tell the full story. The table below shows what a business actually pays each month for accounting plus payroll at common team sizes.

Business Size	Sage (Standard)	Xero (Grow + Payroll)
Sole trader, no staff	£0/mo (Free plan)	£16/mo (Ignite)
1 employee	£39/mo	£37/mo
5 employees	£39/mo	£43/mo
10 employees	£39/mo	£50.50/mo
25 employees	£39/mo	£73/mo

At one employee, Xero is marginally cheaper. But the moment a business has five or more staff, Sage becomes the more economical choice — and the gap widens with every hire. At 25 employees, Sage Standard is still £39 per month while Xero Grow plus payroll reaches £73 per month. Over a full year, that is a difference of £408 — money that could be better deployed elsewhere in a growing business.

Bank Reconciliation

Bank reconciliation is the task you will perform most frequently, so the quality of the experience matters enormously.

Xero is stronger here. Xero's bank feed integration is widely considered the best among UK cloud accounting platforms. Transactions import cleanly, the matching algorithm is intelligent, and the reconciliation flow is smooth enough that most users can process their entire bank feed in minutes. The auto-reconcile feature on Grow and above matches straightforward transactions automatically, and Xero's machine learning improves suggestions over time.

Sage is reliable and improving. Bank feeds connect to all major UK banks and the transaction import works well. However, the matching suggestions historically required more manual intervention than Xero. Sage has invested significantly in improving this workflow in recent updates — including AI-powered suggestions through Sage Copilot — but Xero still holds the edge in the day-to-day reconciliation experience. For most businesses, this is a marginal rather than decisive difference.

Invoicing

Both platforms handle invoicing well, but there are practical differences in limits and automation that affect real-world usage.

Feature	Sage	Xero
Unlimited invoices	All paid plans	Grow and above (Ignite: 20/mo cap)
Invoice customisation	Good — logo, colours, fields	Good — templates, branding
Recurring invoices	Yes	Yes
Quotes and estimates	Standard and above	All plans
Automated payment reminders	Yes — Copilot AI chasing	Yes — template-based reminders
Online payment links	Yes — Stripe, GoCardless	Yes — Stripe, GoCardless, direct debit

The key differentiator is Sage Copilot's AI-powered invoice chasing. Instead of sending fixed-template reminder emails, Copilot monitors overdue invoices and drafts context-aware, personalised chasing messages — helping businesses get paid faster. Early adopters have reported getting paid an average of seven days sooner. Xero's automated reminders follow fixed schedules and templates without AI personalisation.

Payroll

Payroll is the single feature that creates the largest practical and financial gap between these two platforms.

Payroll Feature	Sage	Xero
Included in accounting plan	Yes — Standard and Plus	Partially — limited employees per tier
Extra cost per employee	£0 (bundled)	£1–£1.50/employee/mo beyond plan limit
RTI submissions to HMRC	Yes	Yes
Pension auto-enrolment	Yes — NEST, NOW, People's, Smart	Yes — NEST, NOW, People's, Smart
CIS returns	Yes — native, Standard and Plus	No — requires third-party app
Automatic tax code updates	Yes — from HMRC	Yes
Statutory payments (SSP, SMP)	Yes	Yes
Payslips and P60s	Digital — app + portal	Digital — online

Sage is the only platform of the two that bundles full payroll into its accounting subscription at no extra per-employee cost. A business with 25 employees pays exactly the same £39 per month on Sage Standard as a business with one employee. On Xero, that same business pays £73 per month. Over a year, the saving on Sage exceeds £400.

CIS is another critical differentiator. If you are a construction business, Sage handles CIS deductions, monthly returns, and HMRC submissions natively within the same platform. Xero requires a third-party CIS app, adding cost and complexity. For any business in the construction industry, this alone is often the deciding factor.

VAT and Making Tax Digital

Both platforms are fully MTD-compliant for VAT and can submit VAT returns directly to HMRC. The core VAT experience — VAT schemes, per-box drill-down, and return filing — is comparable across both.

VAT Feature	Sage	Xero
MTD VAT submission	Yes — all plans	Yes — all plans
MTD for ITSA (April 2026)	Yes — including free plan	Yes
MTD AI Agent	Yes — UK's first	No
VAT schemes (Flat Rate, Cash)	Yes	Yes
VAT detail drill-down	Yes — per box	Yes

The notable difference is Sage's MTD AI Agent — the UK's first agentic AI tool designed to automate the preparation and submission of quarterly income updates for Making Tax Digital for Income Tax Self Assessment. With MTD for ITSA going live in April 2026, this is particularly relevant for sole traders and landlords who now face new digital reporting requirements. Neither Xero nor any other UK platform has an equivalent autonomous compliance tool.

AI Capabilities

AI is the fastest-evolving area of difference between these two platforms — and the one where Sage has established the clearest lead.

AI Feature	Sage Copilot	Xero (JAX)
Included in all plans	Yes — free on all plans	Rolling out
Automated invoice chasing	Yes — drafts and sends	Limited
Receipt data extraction	Yes — totals, tax, dates	Yes — LLM-powered (launched March 2026)
Anomaly detection	Yes — proactive alerts	Basic
Cash flow forecasting	Yes — forward-looking	Yes — 30 to 180 days by plan
Natural language questions	Yes	Yes — via JAX
MTD AI Agent	Yes — autonomous compliance	No
Finance-specific AI training	Yes — trained on accounting	General + finance

Sage Copilot is the more mature and capable AI assistant in 2026. It goes beyond answering questions — it actively automates tasks like invoice chasing, detects anomalies proactively, and has progressed into agentic AI with the MTD Agent. Sage made Copilot available free on all plan levels, including the free Sole Trader tier.

Xero launched JAX (Just Ask Xero) and introduced LLM-powered receipt capture for UK customers in early 2026. These are meaningful steps, but Xero's AI is currently more focused on data extraction and question-answering than on autonomous task execution. Xero has indicated more AI features will follow throughout 2026.

Reporting

Sage is strong on analytical flexibility. Multi-dimensional analysis types let you tag transactions by department, project, location, or custom dimensions — and then filter your profit and loss, balance sheet, trial balance, and cash flow reports by those tags. Budget-versus-actual variance reporting is available on the Plus plan. For businesses with multiple revenue streams or locations, this is a powerful capability.

Xero's reporting is adequate but more constrained. Standard reports cover the essentials well, but customisation options are limited unless you are on the Ultimate plan (£65/month). Xero's tracking categories work similarly to Sage's analysis types but are limited to two dimensions. For businesses needing granular management reporting, Sage offers more depth at a lower price point.

App Integrations

Xero wins here — decisively. With over 1,000 third-party integrations in its marketplace, Xero connects to more tools than any other UK accounting platform. Whether you need inventory management, e-commerce connectors, CRM, project management, or niche industry tools, the likelihood of finding a ready-made Xero integration is high.

Sage has a smaller but growing ecosystem. It integrates with the most important UK tools — Stripe, GoCardless, Shopify, AutoEntry — and covers the needs of most small businesses. However, if your operations depend on a wide range of specialised third-party apps, Xero's marketplace is more likely to have what you need.

Support

Support Channel	Sage	Xero
UK phone support	Yes — all plans	No — email and chat only
Email support	Yes	Yes
Live chat	Yes	Yes
Knowledge base	Extensive	Extensive
Accountant network	Yes — Sage Partner	Yes — Xero Advisor

Sage is the only platform of the two that provides direct UK phone support on all plans. Xero does not offer phone support — it relies entirely on email and online chat. For business owners who want to speak to a human when something goes wrong — especially during VAT deadlines or payroll runs — Sage's telephone support is a meaningful advantage.

Who Each Platform Is Best For

Choose Sage if:

You employ staff and want payroll bundled in at no extra per-employee cost — saving hundreds per year as your team grows
You are in the construction industry and need native CIS returns and HMRC submissions
You want the most capable AI assistant (Copilot) for invoice chasing, anomaly detection, and compliance automation
You are a non-VAT-registered sole trader wanting a genuinely free plan with MTD compliance
You value direct UK phone support when issues arise
You want accounting, payroll, and HR managed on one platform with a single login

Choose Xero if:

You need the best bank reconciliation experience — Xero's matching and auto-reconcile are the smoothest available
You rely heavily on third-party apps and need a wide integration ecosystem
Your accountant prefers or standardises on Xero — many UK accountancy practices do
You have a very small team (one to three employees) where per-employee payroll costs remain manageable
You prioritise interface design and ease of use for non-accountants

The Bottom Line

For sole traders with no staff, Sage's free plan is the best starting point in UK cloud accounting — you simply cannot beat a £0 price with MTD compliance included. Once you employ even a handful of people, the maths shift decisively in Sage's favour: the Standard plan at £39 per month with payroll bundled is cheaper than Xero from five employees onward, and the gap only widens with every subsequent hire.

Xero's strengths are real. Its bank reconciliation workflow is best-in-class, its app marketplace is unmatched, and its interface is clean and intuitive. These are genuine advantages that matter to certain businesses — particularly those with minimal staff and complex tool stacks.

But for the majority of UK small businesses — those that employ staff, need payroll and accounting under one roof, value phone support, and want AI that does not just answer questions but actively works on their behalf — Sage offers the strongest overall value proposition in 2026.

This article is for informational purposes only and does not constitute financial, tax, or accounting advice. Pricing and features are accurate as of March 2026. All prices exclude VAT unless stated otherwise. Promotional offers may change — visit each provider's website directly for the most current pricing. Some links in this article may be affiliate links, meaning we may earn a commission at no additional cost to you if you choose to purchase through them.