A significant number of our clients are psychologists running their own practice, so I’ve put together this guide to highlight some key accounting and tax considerations.
Please let us know if there is anything below that I have not covered, I'm happy to update this guide and answer any questions you may have.
Should I Register As Self-Employed or Work Through a Limited Company?
The answer to this will depend on your situation. Many psychologists also work for the NHS or a private organisation. In these cases, operating through a limited company is often less tax-efficient.
If your private practice is your only source of income, a limited company may offer tax advantages, particularly through taking a combination of salary (via PAYE) and dividends.
It's important to remember the decision you make when you first start your practice is not set in stone. You can switch between being self-employed and operating through a company later on. If you’d like tailored advice, we’re happy to help you decide what’s best.
There is more general guidance on limited companies here.
What Deadlines Should I Be Aware Of?
Whichever route you choose, you’ll need to register with HMRC. If you’re self-employed, you’ll declare your income through self-assessment. If you operate through a limited company, you’ll need to declare any dividends received.
- Tax year: 6th April to 5th April.
- Registration deadline: 5th October following the end of your first tax year.
- Tax return deadline: 31st January following the end of the tax year.
This means: If you started trading in January 2022, you’d need to register by 5 October 2022. Your first return would be due by 31 January 2023.
Payment of your tax bill is due on the same date, so if you’re able to get everything to us before the deadline, you'll more time to ensure you have the money available. At the moment HMRC are operating a time to pay scheme, where you may be able to spread your tax bill over the course of the year.
Depending on the size of your tax bill, you may also need to make payments on account. These are advance payments towards your next tax bill, typically due in January and July.
If you operate through a limited company, you’ll have additional deadlines. Your company will likely have a year end that does not coincide with HMRC’s tax year – for example if you set up your company on 1st January 2022, your year end will likely be 31st December 2022. You will have 9 months from that point to file your accounts with Companies House and your Corporation Tax return with HMRC. In this example, you would have a deadline at the end of September.
How Do I Pay My Tax Bill?
You can pay your personal tax bill here and Corporation Tax here. There are several payment methods available. For Corporation Tax, you may need a reference number - we can provide this for you.
What Happens When I Become a Client?
Once we’ve had an initial conversation and agreed on a fee, we’ll send you a contract to sign electronically.
We’ll also need to complete Anti-Money Laundering checks, which require at least two forms of ID.
To act on your behalf, we’ll submit HMRC form 64-8. For this, we’ll need your Unique Taxpayer Reference (UTR), National Insurance number, and a few other details.
When Will You Be In Touch?
This will depend on your circumstances.
- Self-employed only: We’ll contact you shortly after the end of the tax year.
- Self-employed and employed: We’ll be in touch a couple of months later, once you’ve received your P60.
- Limited company: We’ll reach out in the month following your company’s year-end to request records and begin preparing your accounts.
How Should I Keep My Records?
Many psychologists use specialist systems like MidexPro or WriteUpp to manage their practice. If you use one of these, we’ll need either access or - preferably for confidentiality - a download of anonymised financial data.
Ideally, your system will allow you to log expenses as you go, so they’re included in the download.
If you are not using one of these, then I recommend looking at some accounting software. The blog I wrote on this has more information.
While software isn’t currently mandatory, HMRC plans to make it compulsory under Making Tax Digital. More importantly, software can save you time and reduce stress, especially when it comes to tracking expenses and preparing for deadlines.
What Information Do You Need?
In addition to your financial records, we’ll need:
- Your P60 or P45 (if you’ve been employed during the year).
- Your P11D (if applicable).
This helps us ensure your tax return is complete and accurate.
What Costs Can I Claim?
The general rule is simple: if an expense is wholly and exclusively related to your work, it’s fully claimable. If it’s partly personal and partly business-related - such as your mobile phone or broadband - you can claim a proportion.
Many psychologists now work from home more frequently, and HMRC offers a standard allowance based on the number of hours worked at home each month. This is often simpler than calculating actual costs based on room usage and time spent, though with rising energy bills, some clients may find the detailed method more beneficial.
Here’s a list of common claimable expenses for psychologists:
- Equipment (e.g. laptops, testing materials, therapy tools).
- Bad debts (e.g. unpaid client invoices).
- Professional memberships and registrations.
- DBS checks and ICO fees.
- Union subscriptions.
- Training, CPD, and research.
- Advertising and website costs.
- Room hire or office rent.
- Printing, postage, and stationery.
- Mobile phone (business use portion).
- Working from home allowance.
- Broadband (business use portion).
This isn’t an exhaustive list — if you’re unsure whether something qualifies, feel free to ask us.
What Tax Will I Pay?
This depends on whether you’re self-employed or operating through a limited company.
If you’re self-employed:
- Income Tax: 20%, 40%, or 45% depending on your income level.
- Class 2 National Insurance: £3.50 a week (voluntary) if your profits are below £6,845.
- Class 4 National Insurance: 6% on profits over £12,570, and 2% on profits over £50,270.
If you operate through a limited company:
- You’ll typically pay Dividend Tax instead of Income Tax: 8.75%, 33.75%, or 39.35% depending on your income level (rates from April 2022).
Do I Need to Be VAT Registered?
In most cases, no. Practitioner psychologists, along with other healthcare services, are exempt from VAT. This means that you do not need to register for VAT, even if the total of your invoices exceeds the current VAT threshold of £85,000.
However, if you offer services that fall outside the medical exemption, and the total of those services exceeds the threshold in any rolling 12-month period, you’ll need to register. Section 4.3 of the government guidance explains this in more detail.
You can also register voluntarily to reclaim VAT on costs, but this only applies to expenses related to your non-exempt sales. For most psychologists, the impact is minimal.
Anything Else I Should Know?
Many psychologists earn over £50,000 per year which has a few effects:
- Higher-rate tax: You’ll pay 40% income tax on earnings above this threshold.
- Gift Aid donations: You can claim back the additional tax on charitable donations, as charities only reclaim the basic rate.
- Child Benefit: You may need to repay some or all of it depending on your income.
- Pension contributions: Payments into a personal pension scheme are tax-free, and you can claim back the tax on these contributions.
All figures correct as of 6 November 2025.
