Consultancy agreement template

What is a consultancy agreement?

A consultancy agreement is an agreement for the appointment by a client or customer of an individual to provide services on a consultancy basis.  The appointed consultant can either be the individual directly or a personal service company, owned by the individual, and which agrees to provide the services of the individual to the client.  The consultant carries on business in his or its own right as a self-employed independent contractor – the appointing client is the consultant’s customer.  Contrast this to an employee or worker, who is employed to provide services but does not carry on business in the individual’s own right.

The appointment of the consultant can be either:

• a time-based appointment  – a fixed period of time or terminable on notice, or a combination of these
• for a specific project or task.  

What are benefits of a consultancy versus employment relationship?

Benefits of consultancy arrangements for the appointing client include:

• commercial flexibility in the arrangements for the consultancy services and terms of appointment
• avoidance of fixed employment costs and compliance with employee-related laws and regulations

Benefits of consultancy arrangements for the consultant include:

• flexibility in working arrangements
• ability to work for multiple clients/customers
• potential favourable tax treatment of income as a consultant over employment income

What else do I need to know?

Care should be taken to ensure that the relationship is not legally treated as an employment relationship for employment and tax purposes.  This is a complex subject and specific legal and tax advice should be considered to determine the correct status of the relationship if necessary. 

Use of a personal service company as the contracting consultant will provide a layer of limited liability for the consultant.  It may also lead to overall tax efficiencies for the consultant and the elimination of the risk for the client that the arrangement is considered as an employment relationship as between the client and the individual.  However, the consultant will need to review the underlying arrangements between the client and the individual to see if they meet deemed employment test for tax purposes (under the IR35 Rules).  If they do, the service company will need to deduct tax and employee NICs and pay employer NICs.

It is also important that consultancy agreements contain clear provisions relating to the ownership of intellectual property developed by the consultant during the course of providing the services.  If not, there is the risk that any intellectual property created by the consultant as part of the materials or deliverables for the services will remain owned by the consultant and not the client company.  Other important boilerplate clauses include restrictions on the use of confidential information of the client and governing law, especially if the consultant is non-UK based.