Adult to Adult: Let's talk about Tax - Carol Pearson demystifies Making Tax Digital

Tax is not, for most of us, a naturally enlivening subject. Perhaps, like me, you spent part of January wrestling your 2024-25 tax return into submission and promising yourself not to leave it so late next time. If so, the phrase Making Tax Digital may not exactly fill you with delight. It may, in fact, stir a quiet sense of dread, perhaps with a little Child anxiety and the odd Critical Parent commentary thrown in for good measure.

Still, it is worth knowing what is coming. For private practitioners in particular, this may turn out to be one of those changes that sound more intimidating than they actually are.

So, what is it?

Making Tax Digital is HMRC’s move away from annual tax reporting and towards more regular digital record-keeping. The intention is to reduce the annual last-minute rush and help people keep a clearer eye on how much tax they are likely to owe as the year goes on. For those of us in private practice, that may actually be more helpful than it first appears.

Do I need to do it? Maybe not just yet

Whether this applies to you depends on your self-employed income. For these purposes, income means your total gross income from self-employment and UK property income. It does not include employment income, pension income, savings interest or capital gains.

Making Tax Digital is being introduced in stages:

• For the 2024-25 tax year, the income threshold is £50,000, effective from April 2026.
• For the 2025-26 tax year, the income threshold is £30,000, effective from April 2027.
• Based on the 2026-27 tax year, the Government has said it intends to set the threshold at £20,000, with implementation from April 2028. As this has not yet been enacted into law, it may still change.

HMRC will decide whether you need to comply based on the information in your Self Assessment return.

So, for example, if in the current tax year (2025-26) you earn £28,000 from private practice and £20,000 from part-time employment taxed under PAYE, your Making Tax Digital income is £28,000. That means you would need to implement it from April 2028.

What does it actually mean in practice?

In simple terms, Making Tax Digital means filing financial information four times a year using HMRC-approved software.

That does not necessarily mean you need a giant accounting system with bells, whistles and dashboards you will never use. You might choose a package such as Sage or Xero, but these can be time-consuming to set up and may offer far more functionality than many practitioners actually need. Some business bank accounts also offer free software, though not all do, and it may or may not suit your way of working.

HMRC has a tool to help you work out which type of software might suit your circumstances. You can complete the questionnaire here. 

When I filled it in, it gave me 35 results, which felt less like clarity and more like a fresh administrative problem! Still, you can filter for free versions, software that works with existing spreadsheet records, and packages that meet specific accessibility needs. That brought my options down to eight, although some are still in development.

Having tried one of the bigger accounting packages earlier this year and found it very time-consuming to set up, I have decided to go for bridging software that links to my existing spreadsheet. I have signed up for a couple of the free options currently in development and plan to adopt early in April 2026. With any luck, my trial and error may prove useful, and I will be happy to report back to the Connexus community next tax year.

Business expenses in counselling and psychotherapy

In the meantime, if you are new to private practice or beginning to think about how you might work as a qualified counsellor or psychotherapist, it is worth getting clear about business expenses before you even start thinking about how to record them.

One of the more tedious parts of doing a tax return is making sure all business-related expenses have been included. The list below is not exhaustive, and you do not have to categorise your expenses in exactly this way, but it may offer a useful starting point.

It is especially worth paying attention to costs in your first year of trading, including one-off items such as chairs, rugs or lighting for a practice room. Larger items may need to be claimed through capital allowances rather than as day-to-day expenses. You may well make a taxable loss in your first year, but that can be carried forward to offset against future profits.

Car, van and travel expenses
This may include mileage at 45p per mile for up to 10,000 miles per annum, and 25p thereafter, as well as travel and parking costs for CPD courses and supervision.

Rent, rates, power and insurance
You may be able to claim for professional indemnity and public liability insurance. If your private practice is based at home, it may also include heating and lighting, either at the HMRC flat rate or through actual apportionment based on the rooms used and the time spent.

Accountancy, legal and other professional costs
Relevant costs under this category may include professional memberships such as UKATA, EATA, NCPS, BACP, ITAA, and UKCP, as well as ICO membership fees, supervision costs, and training or CPD costs that maintain or update existing skills.

Phone, stationery and other office costs
Possible expenses here include Zoom or Microsoft Teams subscriptions if you see clients online, Microsoft Office subscriptions for Word or Excel if used in your business, credit card machine costs such as SumUp, and business phone or broadband costs where you work online. These need to be claimed on a proportionate basis, as personal usage is not allowable.

Other allowable business costs
For many practitioners, this can include marketing, such as your own website or subscriptions to Psychology Today or Counselling Directory, as well as items used wholly and exclusively for your therapy room, such as candles, plants, tissues, books used as professional reference material, flipcharts, table lamps, and cleaning costs.

Financial charges
You may be able to claim for SumUp or other credit card machine fees, as well as bank charges.

Making Tax Digital may feel like one more administrative demand in an already busy working life. But for many private practitioners, it may be less a major upheaval than a gradual shift towards keeping records a little more consistently and submitting figures you may already be tracking. The key is to know when it applies to you, understand what counts, and prepare in good time. If it saves even a little of that annual January dread, that may not be such a bad thing!

Carol Pearson is a psychotherapeutic counsellor and a chartered accountant. She is deputy chair of Surrey and Borders Partnership NHS Foundation Trust and treasurer of the Money and Mental Health Policy Institute. Carol’s interest in psychotherapy came on the back of many years of work at Endometriosis UK. She is currently writing up her CTA and is a keen artist and potter.