Is Psychological Therapy or Counselling a Business Expense in the UK?
A question I’m often asked by the psychologists I supervise as well as the clients I support is “is therapy tax deductible?”. On the face of it this makes a lot of sense. For psychologists, personal therapy is sometimes a core part of our training. Once qualified, it is invaluable in helping us maintain our own wellbeing so we can give the highest quality support to the clients we work with. For our clients, therapy often allows them to return to work where this would otherwise have been impossible, thrive in their workplace, vastly improve their working relationships, and enhance the value they bring to their employer. However, the reality of whether therapy is a business expense in the UK is complicated.
What is a business expense?
For those who are self-employed as a sole trader or limited company, business expenses or “non-taxable benefits” are costs that are subtracted from your revenue (overall income) before calculating overall profit. Given payable tax and national insurance are calculated based on a company’s profits, correctly calculating business expenses is important to make sure you are paying the right amount of tax. Expenses can reduce the average tax bill—often significantly.
Let’s look at the example of a sole trader whose revenue (income) is £100,000 and their spending on printing is £10,000.
If they didn’t claim any expenses, they would pay £31,997 in tax and national insurance and keep £68,003.
If they correctly claimed the printing as a tax-deductible expense, they would pay £27,797.24 in tax and national insurance and keep £72,202.76.
Correctly claiming their business expenses has increased their take home pay by £4,200.
As a rough rule of thumb, for a sole trader, correctly claiming an outgoing as a business expense makes it 32% cheaper for a basic rate taxpayer, and 42% cheaper for a higher rate taxpayer. For a limited company the calculation is more complicated but broadly speaking, correctly claiming expenses saves between 26% and 68% of their total cost.
Given the vast difference, correctly understanding what expenses can be put through your business is vital.
Is therapy a business expense in the UK?
HMRC have published recent guidance that psychological therapy with a Clinical Psychologist is a tax-deductible business expense under specific circumstances. The relevant HMRC guidance states that the focus of the therapy must be for stress, ill health, problems at work, bereavement, abuse, or personal relationship difficulties. To qualify as a tax-deductible expense, the service cannot offer tax, legal, or financial advice, or specific advice regarding leisure or recreation. As a further condition, if you employ other people, you must offer all employees an opportunity to access an equitable level of support based on similar circumstances in order for the cost of sessions to be tax deductible.
Therapy sessions with a Clinical Psychologist routinely address difficulties that fall under the international classification of diseases (ICD-11); the diagnostic framework used in the UK. For example, depression, anxiety, PTSD, chronic health difficulties, insomnia, and addiction. As such, therapy for these difficulties can fall under the conditions required by HMRC to be classified as a tax-deductible business expense under the stipulation of “ill health”. Several further examples of qualifying difficulties are specifically listed by HMRC in stress, bereavement and abuse, and problems at work. Psychological therapy and counselling for personal relationships are also allowable provided all individuals receiving support are employees and all employees can access an equitable level of support. Therapy for dependents of employees is not normally allowable.
Take home message
Psychological therapy can be an allowable business expense in specific circumstances. If the focus of the therapy is one of the areas listed by HMRC, and all employees have equitable access to this support, should they need it, the cost of these sessions is normally allowable as a business expense in the UK.
It is important to know that Konnect Clinical Psychology is not a legal entity, and the above general information does not constitute financial advice. We advise all individuals to review their situation personally.
About the Author
Dr Joseph Barker is a Chartered Clinical Psychologist with over 10 years training and experience in a range of mental health services. Joe currently works in the NHS as a Senior Clinical Psychologist supporting people living with anxiety, trauma, and long-term health conditions. Joe additionally trains Clinical Psychologists at the University of East Anglia and has appeared on MQ as an expert on anxiety. Joe’s award-winning research has been published internationally and he delivers training and supervision to a variety of qualified professionals. Joe is recognised as a Chartered Clinical Psychologist by the British Psychological Society and is registered with the Health and Care Professions Council (HCPC).