What Is A Consultancy Agreement?

A Consultancy agreement enables you to specify the terms and conditions under which you will employ the services of an external consultant. A consultant may be an individual or a business. In a Consultancy agreement, you can specify a number of requirements for the consultant, such as professional indemnity insurance and employer indemnity insurance, the duration of the consultancy (fixed term or terminated with notice, for example), the amount of time the consultant will devote to your company, and how and when the consultant will be compensated. In this article, what is a consultancy agreement, we take a look at the process and mechanism involved.

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For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of consultancy agreements and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 9401 045 or click here to make a free enquiry and a member of the team will get back to you.

What are the advantages of entering into a consultant agreement?

A Consultancy agreement may be helpful if you require only a portion of a consultant’s expertise or abilities. Additionally, a consultancy relationship is exempt from the vast majority of the legal duties and liabilities associated with employment agreements. This boosts their adaptability and gives you more control over the dynamics of the relationship.

What are the disadvantages of a consultancy agreement?

Businesses have significantly less control over consultants than they do over workers or other staff. Due to the fact that consultants are frequently not bound by implied obligations of loyalty or confidentiality, you may wish to include terms in the consultation agreement that protect your company’s sensitive information. You should be mindful, however, that any clause granting you additional control over the consultant increases the probability that they would be regarded an employee.

What terms and conditions should I include in a consultancy agreement?

Typically, a consultancy agreement contains the following information:

• What the consultant is recruited to accomplish
• The duration of the agreement—whether it is fixed-term, project-based, or open-ended
• Payment frequency (flat fee, hourly rate, etc.)
• Whether the client will pay a retainer fee to the consultant
• How expenses for the consultant will be handled
• The contracting party retains ownership of any intellectual property developed as a result of the transaction.
• Whether the consultant will be bound by an obligation not to divulge confidential information

What are the legal implications of being a consultant or an employee?

Because the law handles employees and independent consultants differently, the fact that someone is a consultant rather than an employee has a number of ramifications, including the following:

• A consultant is compensated on the basis of invoice output, not payroll. There is no fixed wage or income, but rather a negotiated charge for the services rendered.
• The consultant is liable for their own taxation, and the firm that employs the consultant should not be required to pay national insurance contributions;
• The business does not owe the consultant nearly as many obligations as it does to its employees.

It is critical to distinguish the function of a consultant from that of an employee for tax and health insurance purposes, as well as to avoid employment law disputes relating to unfair dismissal, sick leave, and other issues.

What is the best way to stop a consultant being classed as an employee?

Just stating that the agreement is a consultancy agreement and that the consultant is self-employed rather than an employee is not enough. When determining employment status, courts will look beyond contractual words that do not accurately reflect the parties’ true agreement and will find the appropriate category based on a number of considerations, including the following:

• who is in control of the work and its output;
• whether the retained party is required to submit progress reports;
• the duration of the parties’ relationship;

In order to prevent a consultant being classed as an employee, the following points should be considered:

• Permit the consultant to exercise adequate control over their working conditions (when, how, and at what hours they work);
• Avoid working with the same consultant indefinitely without taking a break. Employ consultants on a project-by-project basis and do not ban them from working for others;
• Allow consultants to bring their own equipment and avoid integrating them into the workplace (for example, no business email account);
• Regularly evaluate the parties’ arrangements to determine whether your consultant remains a consultant or if they have become an employee and should be regarded as such.

Are there different types of consultancy agreements?

A common type of consulting agreement is one in which a personal service company is utilised (PSC). The consultant owns a service company and is typically also its sole director and employee under this setup. The consultant does not enter into a direct contract with the client; rather, the client enters into a contractual relationship with the consultant’s PSC. The consultant delivers personal services to the customer, and upon receipt of an invoice, the client pays the consultant’s PSC fees.

Owners of medium and large-sized businesses that hire consultants via their PSC should be aware that the consultant may be classified as a ’employee’ for IR35 tax purposes. By April 2021, the client must give a “Status Determination Statement” for each consultant with whom they conduct this business. Among other things, the SDS must state whether the consultant is a legitimate self-employed individual or a tax-exempt employee. If the consultant is classified as an employee, the “fee-payer” (who in some instances may also be the client) is responsible for deducting income tax and employee national insurance contributions via PAYE.

A different sort of consultancy agreement is one between a business (the client) and a self-employed independent contractor (the consultant). A contract is formed between the consultant and the customer in which the consultant promises to provide services in exchange for pay. As a self-employed individual, the consultant will be liable for their own income tax via self-assessment.

How we can help

We have a proven track-record of helping clients with their consultancy agreements. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

How to Contact our Corporate Solicitors

It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.

To speak to a member of our new enquiries team today, simply call us on 0345 9401 045  or click here to make a free enquiry . We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Corporate, News Tagged as

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