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Are You Thinking of Using a Consultancy Agreement?

Wednesday, 31 July 2013

Although there are tentative signs of improvements in the economy and the employment market, flexibility remains a priority for many businesses. Consultancy agreements can provide just that.

Consultancy agreements are contracts between a consultant and a business outlining the terms and conditions related to the types of services the consultant will provide. The contracts usually contain provisions for start and finish, consultant liability, payment, roles and responsibilities, confidentiality and specifying the aims and the services.

Overview of the Consultancy Agreement

As the employment market is evolving, individuals offering their services as consultants and the use of consultants by businesses, is becoming more common. A consultant is a self-employed contractor who is engaged to provide specific expertise or service. Whether you are the individual considering offering consultancy services or a business hiring a consultant it is important to have clear rights and responsibilities to protect your respective positions.

Any consultancy relationship should start with a consultancy agreement. Before entering into a consultancy agreement legal advice should be sought by both parties. Each party should fully understand the relationship they are embarking on as there are complicated legal issues that need to be explained such as tax implications.

Using the services of a solicitor is important to ensure that the consultancy agreement is carefully drafted and negotiated. It also removes the potentially awkward issue of direct negotiation with people who may end up working together. If a consultancy agreement is not properly drafted, parties run the risk of the agreement creating a different relationship such as an employment or agency relationship, which impose different legal obligations.

Other Issues to Consider with Consultancy Agreements

As with any contractual relationship, parties must consider the potential benefits and disadvantages of a consultancy agreement from each parties’ point of view and the type of consultant they wish to be, for example a self-employed individual or a contracted service company consultant.

Advantages for a business include: freedom from any employment statutory obligations or liabilities, possible tax savings, avoidance of contractual notice payments and redundancy, and gaining independent and impartial advice. Furthermore the agreement can be structured with greater flexibility to the direct nature of a company’s needs.

From the perspective of the individual consultant, a consultancy arrangement may offer more flexibility and control over their terms of work, and they might be able to benefit from a more favourable tax position by being self-employed.

There are also potential negatives. From the businesses perspective a company cannot control the behaviour of a consultant in the same way it could with one of its employees, the tax position is not always clear, the reality of a consultant’s legal employment status may differ from what is stated in the agreement, and fees can be expensive.

For a consultant they run the risk that they will be exposing themselves to a greater financial risk, their tax position may not be clear, consulting a lawyer can be expensive and they are not afforded the same protections as employees under the various statutory initiatives.

For expert help with drafting or negotiating consultancy agreements, please contact James Crichton via e-mail or by telephone on 0207 611 4848.