Consultancy Agreements

Businesses often engage consultants via a company – ordinarily, a personal service company (known as a PSC) owned wholly by the consultant providing the services, or, can appoint a specialist company to provide ad-hoc consultancy services.

When contracting with a consultant via a PSC, the agreement must document the commercially agreed terms to formalise the relationship.

A consultancy agreement ordinarily contains provisions such as:

• responsibilities and obligations of the consultant;
• the identity of any individual who is to provide the consultancy services, and how replacements for such individual can be appointed;
• payment and financial terms, including whether the consultant is to be paid on a time and materials or commission basis;
• responsibility for tax and social security;
• liability of the consultant in respect of the advice or services they are providing; and
• intellectual property rights of the deliverables and materials the consultant delivers during the course of the services.

Consultancy arrangements can be complex and can lead to disputes and legal or tax issues if not dealt with correctly. Developments in employment and tax law in recent years have added further complexity as legal and tax authorities now tend to look at the reality of the relationship in place (rather than the terms of the contract or names the parties have given to the relationship) to identify the status of the consultant.

Businesses who create a relationship with the consultant indicating one of employment may find themselves liable for the associated tax payments and to the individual for various employment rights. In conjunction with a written consultancy agreement, seeking early legal advice is essential for businesses to understand such risks and ensure they have the correct arrangements in place. 

Businesses looking to engage a company (other than a PSC) to provide consultancy services generally require a supply of services agreement or terms and conditions together with a service level description. See Commercial Contracts and Standard Terms and Conditions for more information on these documents. We can draw on our experience in drafting PSC consultancy contracts and supply of services agreements to ensure your agreements cater to your specific requirements.

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