Consultancy Agreements

Consultants

The use of consultants has come under increased scrutiny in recent years. The updated IR35 regulations that came into force in 2021 to ensure that consultants are correctly classed as either employees or contractors, to ensure the correct tax is being claimed from them. More information on IR35 can be found here.

There are two main types of consultancy agreements:

1. Self-employed: An agreement between an individual consultant and the business they perform services for. The arrangement presumes that the consultant is genuinely self-employed and not an employee of the business. The relationship has implications for national insurance and tax contributions and IR35 should be carefully considered.
   
   
2. Consultant via a service company: Where a business contracts with a service company. The service company often is wholly owned by the individual performing the services and usually has one director and one employee, who are the same person. These vehicle companies allow the consultant to limit their liability and be more tax efficient. As set out above, these relationships can be found to be an employment relationship and be caught by IR35 if not properly considered.

Elements of a Consultancy Agreement

A consultancy agreement should include clauses relating to the services being provided and the amount of time that should be spent on them. One key consideration that is sometimes overlooked is confidentiality. As the consultant acts independently to the business and may be dealing with commercially sensitive projects or information, a non-disclosure clause would be a prudent addition to the contract. Another tool to use is restrictive covenants to limit the consultant’s ability to contact your customers or other suppliers.

You should also consider the protections you need to give to your intellectual property. Unlike an employment relationship there is not a rule that generally intellectual property created during the course of the relationship belongs to the company employing the individual. Unless stated otherwise, intellectual property will be owned by the consultant or the service company and it is therefore important that the contract is carefully drafted to specify when, or if, ownership of the work created by the consultant belongs to the company. 

Consultancy relationships tend to be more flexible than the traditional employer / employee relationship, so the contract should reflect this. You should be mindful not to broach IR35 regulations but our team can draft suitable contracts that will help you achieve the consultancy relationship you want. If you would like assistance with preparing a consultancy agreement or would like more information relating to a proposed or existing consultancy relationship our Commercial Team will be happy to assist you.