If you are having difficulties with a Consultancy Agreement, or are considering entering into one, then Blacks Solicitors’ expert Employment Law team can help.
The use of self-employed contractors is becoming more common as companies fill skill gaps in their workforce by using freelance or self-employed consultants. Such an arrangement, whilst not suitable for everyone, can benefit both parties. For example, you avoid the need to recruit and train extra staff whilst the Consultant benefits from the flexibility and favourable tax treatment that the arrangement gives them.
When engaging a Consultant it is important that the services they are providing are documented in a formal Consultancy Agreement and that legal advice is sought from the outset.
Failure to define the contractual terms upon which the Consultant will provide the services could result in the Consultant being found to be an employee or a “worker” of your company. This could give them employment rights that were never intended. Failure to get this right can also have tax consequences if a Consultant or client company has been paying the wrong amount of tax (or not paying tax at all) as a result of a misunderstanding over their employment status.
Things to consider when entering into a Consultancy Agreement
- What services will the Consultant provide?
- For how long is the Consultant required to perform the services?
- Can the Consultant provide a substitute to perform the services?
- What is the fee for performing the services?
- Will you pay for the Consultant’s services?
- Will the Consultant have access to your confidential information?
- Does the Consultant need to be restricted from working for a competitor?
- Is the Consultant likely to create any Intellectual Property during the term of the Agreement? If so, who will own it?
- Does the Consultant have sufficient insurance to cover the performance of their services?
- What happens if you aren’t satisfied with the performance of the Consultant?
- How can the Consultancy be brought to an end?
Sometimes consultants may provide services to a client through what is known as a service company. This is a limited company that is usually owned by the Consultant which provides the Consultant’s services to you. This arrangement may have tax advantages and also helps to limit the Consultant’s personal liability.
The use of service companies, whilst common, presents risks for both parties. HM Revenue & Customs (HMRC) dislikes such arrangements if the Consultant would otherwise have been an employee, and views service companies as a tax avoidance measure.
If you are having issues with a Consultancy Agreement, or are considering entering into one, please email or call Blacks’ Employment Law team today on 0113 207 0000 for a free no obligation discussion.