Why do I need a consultancy agreement?

Consultancy and outsourcing agreements are an essential way to document all the terms of an engagement of a consultant or a company for outsourcing. There are important legal and tax implications to hiring contractors which cannot be sufficiently defined and agreed without a properly drafted written agreement. Getting an agreement in place should be the number one priority of consultants, freelancers, contractors and clients before any services are provided.

Tax Rules (IR35)

It is imperative that businesses review their consultancy and outsourcing contracts to ensure that they do not find themselves subject to unwanted tax bills particular as rules around tax and IR35 can be subject to change.

A key element to whether a contractor will be considered to be self-employed for tax purposes depends on the degree of control the business has over the contractor. The first point of call when evaluating this will be the consultancy agreement and therefore it is important that this is drafted to reflect the relationship that the parties intended to create.

Key clauses

A contract for consultancy or outsourcing services should be drafted to contain key terms of the engagement whilst allowing some flexibility or a process for change if required. Key elements that need to be considered include:

  • Services: You will need to set out what services are to be provided, how, and when. This prevents the level of service expected becoming exponentially more than can be provided.
  • Time frames: Setting out milestones for services in the contract means parties are clear on the timeframes to be worked within.
  • Payment: How and when are the services going to be paid for? Will it be based on an hourly rate or a fixed-fee?
  • Substitution: This is another important consideration in light of the IR35 rules. Contrary to the publicity, inserting a substitution clause does not guarantee you will fall outside of the rules. However a genuine clause may be useful to include.
  • Termination: Have you considered on what grounds the parties can terminate the contract and whether notice is required?
  • Confidentiality and exclusion clauses: As a consultant you may need the right to use certain intellectual property rights after the relationship has ended. Clients will want to protect business sensitive information. Again, an exclusivity clause could have IR35 implications so this will need to be properly drafted.

Our team of expert commercial solicitors are experienced in preparing consultancy and outsourcing contracts. For further information, please contact Richard Coulthard on 0113 284 5000 or alternatively email Richard.Coulthard@isonharrison.co.uk.