Step by Step Guide to MTD for Psychotherapists 2026
If you are a psychotherapist running your own practice, tax admin is probably not the reason you chose this profession. Your focus is on supporting clients, maintaining ethical standards, and managing the emotional demands of clinical work, not on keeping up with changing HMRC rules. However, from 2026, Making Tax Digital (MTD) will affect many self-employed psychotherapists, changing how income is recorded and reported to HMRC.
MTD moves tax reporting away from the familiar once-a-year Self Assessment return and towards digital record-keeping and regular updates throughout the year. For therapists in private practice, this can feel like another administrative burden, especially alongside supervision, CPD, and client work. This guide is written specifically for psychotherapists, breaking down what MTD means for you, whether it applies to your practice, and how to prepare in a calm, manageable way, without adding unnecessary stress.
What is Making Tax Digital (MTD)?
Making Tax Digital, or MTD, is HMRC’s initiative to modernize tax reporting in the UK. In simple terms, it moves self-employed professionals, such as psychotherapists, from manual, paper-based reporting to digital record-keeping and online submissions.
For psychotherapists, this means that instead of preparing one big Self Assessment tax return at the end of the year, you will now need to:
- Keep your income and expenses recorded digitally throughout the year.
- Submit quarterly updates to HMRC using approved software.
- Complete a final declaration after the tax year ends to confirm totals and pay any tax due.
MTD does not change how much tax you pay or which expenses you can claim. It’s simply about how and when HMRC receives your information. For therapists running private practices, this can make tracking income from clients, supervision fees, room hire, and CPD expenses more structured and easier to manage.
Think of MTD as a way to keep your tax records up-to-date, organized, and digital, reducing the end-of-year scramble and helping you avoid mistakes or HMRC inquiries.
Who MTD Applies to and When?
MTD for Income Tax applies to self-employed psychotherapists whose total qualifying income exceeds £50,000 per year. Qualifying income means your gross income before expenses, not your profit. This includes fees from private clients, online sessions, group work, and any other self-employment income you earn alongside your therapy practice.
If your income exceeds this threshold, MTD becomes mandatory from 6 April 2026. From that point onwards, you will no longer report your therapy income through a single annual Self Assessment return. Instead, you will be required to keep digital records and submit regular updates to HMRC throughout the tax year.
If your income is below £50,000, MTD does not apply to you yet. However, HMRC has made clear that MTD will be expanded in stages, so many psychotherapists currently below the threshold may be brought into the system in future years. For this reason, even therapists who are not yet required to comply may benefit from moving towards digital record-keeping early.
For psychotherapists with mixed income, for example, part-time private practice alongside employed NHS or charity work, it is important to note that only your self-employed income counts towards the MTD threshold. Employment income taxed through PAYE does not trigger MTD on its own.
Step-by-Step Guide to MTD for Psychotherapists
If you’re a psychotherapist, the idea of Making Tax Digital (MTD) can feel a little overwhelming at first. After all, your focus is on supporting clients, not crunching numbers. That’s why this step-by-step guide is designed to make the process clear and manageable. We’ll take you through everything from checking whether MTD applies to your practice to setting up digital records, choosing software, submitting quarterly updates, and completing your final declaration. By following these steps, you can stay compliant with HMRC while keeping your focus on your therapy work.
Step 1: Check Whether MTD Applies to You
The first step is to determine whether Making Tax Digital (MTD) applies to your practice. MTD for Income Tax is being phased in gradually for self-employed individuals, including psychotherapists, based on your total self-employed income.
Here’s how the thresholds work:
- From April 2026: MTD applies to self-employed income over £50,000 per year. This includes income from private sessions, group workshops, online therapy, and any other therapy-related fees.
- From April 2027: The threshold for mandatory MTD reporting will be lowered to £30,000, expanding the requirement to more therapists as part of the phased rollout.
- From April 2026–2028: HMRC is also introducing a £20,000 threshold for certain smaller self-employed earners, meaning some therapists earning between £20,000 and £50,000 may start transitioning to digital reporting gradually.
Even if your income is below these thresholds, it’s a good idea to start keeping digital records early. This helps you stay organised, makes it easier to manage your expenses, and ensures a smoother transition when MTD eventually applies.
Once you know which threshold you fall into, you can confidently move on to the next steps: setting up your digital records and choosing the right MTD-compatible software to stay compliant.
Step 2: What MTD Actually Changes for Psychotherapists
Making Tax Digital doesn’t change how much tax you pay as a psychotherapist, nor does it affect which expenses are allowable. What does change is how and when you report your income and expenses to HMRC.
Under the traditional system, most therapists file one Self Assessment tax return at the end of the tax year, usually in January. With MTD, the process becomes continuous and digital:
- You need to keep digital records of all income and expenses throughout the year.
- You will submit quarterly updates to HMRC, summarizing your earnings and costs so far.
- At the end of the tax year, a final declaration confirms your totals and calculates any tax due.
For psychotherapists, this means keeping track of session fees, workshop income, room hire, supervision costs, CPD expenses, insurance, and any other business-related costs on an ongoing basis. The aim is to reduce errors, make your tax position clearer throughout the year, and avoid the last-minute scramble at year-end.
In short, MTD shifts your tax reporting from a once-a-year chore to an ongoing, organised process, giving you better control and visibility over your practice finances.
Step 3: Setting Up Digital Record-Keeping
Once you know MTD applies to your practice, the next step is to get your records in order. Under MTD, all income and expenses must be stored digitally in a format that can be submitted to HMRC using compatible software.
For psychotherapists, this means keeping track of:
- Income – fees from private sessions, workshops, online consultations, and group work.
- Allowable expenses – supervision fees, room hire, professional insurance, CPD courses, software subscriptions, and any other costs directly related to running your practice.
- Other supporting documents – receipts, invoices, bank statements, or contracts that prove your claims.
Digital record-keeping doesn’t have to be complicated. You can use a simple spreadsheet linked to MTD-approved software, or dedicated accounting software designed for small businesses and sole practitioners. The key is that everything is stored digitally, organised, and easily accessible, so quarterly updates to HMRC are smooth and accurate.
By keeping your records up-to-date throughout the year, you’ll avoid the stress of scrambling to find receipts and invoices at tax time. It also makes it easier to see exactly how your practice is performing financially, giving you a clearer picture of income and expenses.
Step 4: Choosing MTD-Compatible Software
Once your records are digital, the next step is to choose software recognised by HMRC for MTD submissions. This software stores your records and allows you to submit quarterly updates and your final declaration directly to HMRC.
For psychotherapists, options range from simple apps for sole practitioners to full accounting platforms if you have multiple income streams or workshops. When choosing software, ensure it is officially MTD-compatible and can clearly categorise your therapy-related income and expenses.
Using the right software makes quarterly updates easier, reduces errors, and gives you a clearer overview of your practice finances throughout the year. Many therapists find that once the system is set up, it actually saves time and stress at tax time.
Step 5: Signing Up for MTD and Linking Your Software
After choosing your MTD-compatible software, the next step is to sign up for Making Tax Digital with HMRC and link your software to your account. This step officially brings your practice into the MTD system and allows your records to be submitted directly and securely.
You’ll need your HMRC online account credentials (or Government Gateway ID) and some basic information about your self-employment. If you work with an accountant or bookkeeper, they can usually handle the registration and linking for you, making the process smoother.
Once your software is linked, it will allow you to:
- Submit quarterly summaries of your income and expenses directly to HMRC.
- Ensure your records are automatically aligned with HMRC requirements.
- Reduce the risk of mistakes when preparing your final declaration at the end of the tax year.
For psychotherapists, the linking process may feel technical at first, but most MTD software guides you through each step. Once your account is connected, you can focus on maintaining accurate digital records, while the software handles the reporting side.
Completing this step gives you the foundation for smooth MTD compliance. From here, you’re ready to move on to submitting quarterly updates, which keeps your tax records up to date throughout the year.
Step 6: Submitting Quarterly Updates
Once your software is linked and your records are digital, the next step is to start submitting quarterly updates to HMRC. Unlike the traditional Self Assessment system, MTD requires you to report your income and expenses throughout the year, rather than just once at the end. This change may feel unusual at first, but it’s designed to make tax management more organised and less stressful.
MTD for psychotherapists, these quarterly updates include your income from private sessions, workshops, and online consultations, as well as any allowable expenses such as supervision fees, room hire, professional insurance, CPD courses, and software subscriptions. The updates are informational, which means they show HMRC what you’ve earned and spent so far, but they do not calculate your final tax liability.
Submitting updates regularly has several advantages. It helps ensure your records are accurate and up-to-date, reduces the risk of mistakes, and allows you to monitor your tax position throughout the year. Most MTD-compatible software will provide reminders and guide you through the submission process, making it manageable even for busy therapists.
For psychotherapists with active practices, setting aside a short block of time each quarter to review and submit your updates can make the process much smoother. Over time, many therapists find that keeping on top of quarterly submissions reduces year-end stress, gives a clear overview of income and expenses, and allows them to focus more fully on their clients rather than tax paperwork.
Step 7: Completing Your Final Declaration
At the end of the tax year, after submitting your quarterly updates, you will complete a final declaration to HMRC. This step confirms your total income and expenses for the year and calculates the final tax you owe. While MTD requires ongoing reporting throughout the year, the final declaration ensures that all your records are reconciled and any outstanding payments are accounted for.
For psychotherapists, this means reviewing your income from private sessions, workshops, and online consultations, as well as all allowable expenses such as supervision, room hire, insurance, CPD courses, and software subscriptions. Your MTD software will guide you through the process, using the quarterly updates you’ve already submitted to generate accurate totals.
Completing the final declaration also provides an opportunity to check that all records are complete and accurate. If any adjustments are needed—perhaps an invoice was missed or an expense was categorised incorrectly, you can make corrections before submitting. This ensures your tax return is correct and reduces the risk of HMRC queries.
Once the final declaration is submitted, your tax payment is calculated based on your reconciled income and expenses. For most self-employed psychotherapists, the deadline for paying any tax due remains the same as under Self Assessment, usually 31 January following the end of the tax year. By keeping up with quarterly updates and using your software effectively, the year-end process becomes much smoother, less stressful, and far easier to manage alongside your client work.
Conclusion
Making Tax Digital represents a significant shift in how psychotherapists manage their tax obligations, but it doesn’t have to feel overwhelming. By moving from an annual Self Assessment to digital record-keeping and quarterly updates, you gain better visibility over your income and expenses and reduce the stress that often comes with year-end filing.
The most important steps are simple: understanding whether MTD applies to your practice, keeping accurate digital records, choosing the right software, submitting quarterly updates, and completing your final declaration. While these changes may seem like extra work at first, once your system is in place, MTD can make managing your practice finances more organised, accurate, and efficient.
For psychotherapists, the goal is to stay compliant with HMRC while keeping your focus on what matters most, your clients and your practice. Starting early, keeping records up to date, and using the right tools will make the transition smoother and give you confidence that your tax reporting is accurate, timely, and stress-free.
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