AI adoption doubles profitability in UK accounting

By Puja Sharma

Xero research reveals UK’s top accounting and bookkeeping firms are twice as profitable – with AI adoption at the core

New research from Xero finds top-performing firms embedding AI into daily workflows save up to 10.6 hours a week – 1.5x the UK average – and only 5% of all practices expect AI adoption to reduce headcount in the next year

A combination of embedding AI into day-to-day workflows, smarter practice management and a focus on freeing up time for high-value advisory work is linked with converting revenue more efficiently for accounting and bookkeeping practices. The most profitable firms earned an average net profit margin of 2.1 times more than lower-margin firms last year. 

This is according to the Modern Practice Playbook, a new report from Xero which reveals what the UK’s top-performing practices are doing to structure winning firms, integrate AI, refine their service portfolios, and evolve pricing. The report defines top performers as employing firms with a net profit margin of 41% or above.

AI rewards firms building the right foundations

The research shows that AI use is creating significant gains for all UK accounting and bookkeeping practices, saving them almost a full working day per week (7.1 hours). When asked about how much money this saved them across all staff, due to time saved by AI tools, the result is approximately £108,000 per year. But for the top-performing firms which have moved beyond experimentation into active daily use and embedding tools into their workflows, the financial return almost doubles to £202,000 per year and 10.6 hours per week. 

Of the practices actively using AI in daily workflows, 87% say their core business processes are well-documented and regularly updated. That figure drops to just 18% among practices that aren’t planning to use AI. Those daily users are saving almost half a working day more per week than average – and twice the monetary value – indicating that mapping processes before embedding AI tools is key to helping practices better understand where to more deeply embed AI in their businesses. 

AI is evolving jobs

Despite more firms embedding AI into workflows, only 5% of UK practices expect AI to reduce headcount within the next year. Instead, they see it as an opportunity to redirect hours to areas like advisory which carries the highest profit margin of any service UK firms offer at 51%.

Only just over half of firms currently provide advisory services, with 19% citing capacity as a key barrier. This gap is likely to close in the future, with 3 in 5 practices directing the AI time savings they are seeing towards this high-value advisory work. This is one of the clearest signs of where the profession is heading.

Kate Hayward, UK MD, Xero, said: “The qualities that define the successful modern practice are clear. We’re seeing firms make more deliberate decisions over which clients to serve, how to build teams around them, which tools to use, and never letting billable work go untracked – all contributing to major gains across the industry.

“The data speaks for itself when it comes to AI. It’s about freeing up time to bring this industry’s most valuable skills to the surface, it’s not about replacing people. The story here is what it allows firms to do next, whether that’s advisory, deeper client relationships or growth. Our data shows that while AI accelerates the positive changes already underway, getting the essentials right has never been more important.”

Building a winning firm isn’t all about AI

The research shows that the modern practice model is being shaped by far more than AI, as firms rethink how they hire, organise teams and price their services. 

Over 3 in 5 (63%) firms are changing what they look for when hiring, with soft skills and relationship management (28%) and technology fluency (27%) now taking precedence over traditional accounting skills. Top performing firms are going further, being twice as likely than the average practice to hire non-traditional roles like data analysts and tax technologists (34% vs 18%), helping them build more specialist capabilities.

This shift is also reflected in how firms charge for their work. Top performers charge over a third more for payroll alone, highlighting the opportunity in retainer and value-based pricing models rather than time spent. These top performers are also more than twice as likely to plan a price rise above 20%. Encouragingly, 2 in 5 practices who use value-based pricing say it has made their practice more profitable. 

Rachel Harris, Director of UK-based accountancy practice, striveX, added, “Over the last five years, technology has powered my firm’s growth engine and been a huge contributor to why we’re now a multi-million-pound business. Gaining access to AI is freeing my team up for higher-value work, so we can now spend more time interpreting it for our clients. But it’s mapping client journeys, each piece of software and every process my team touches along the way which has proven to be our best diagnostic tool. Any margin gained from having our team well set up to know when and how to reach for different tools is reinvested in our client relationships.”