A consultancy agreement is used to hire people so that no employment ties are formed. Our employment law team discusses the advantages and disadvantages of various forms of consultation agreements before describing some of the clauses in a consultancy agreement.
Self-employed consulting agreement
The consultancy service agreement between a company (the customer) and an independent contractor (the consultant) is a form of agreement between them. As an independent contractor, the consultant is responsible for filing their own income tax returns and will be required to provide services for a fee. As an independent contractor, the consultant is required to sign a contract with the client to provide services for a fee.
consulting agreement for a personal service firm
Consultation services (PSC) are also frequently provided by personal service firms (PSC). As a director and employee of the consultant’s service business, the consultant owns it. In this case, the consultant’s PSC and the client enter into a contract, rather than the consultant and the client. The consultant’s PSC is paid by the client after receiving an invoice for the personal services rendered to the customer.
Large and medium enterprises should be aware that consultants hired through their PSCs may be taxed under IR35 as employees. Customers who work with consultants in this manner must create a Status Determination Statement by April 2021. Among other things, the SDS must disclose whether the consultant is actually an employee for tax purposes or a true self-employed consultant. The “fee-payer” in some cases is also the client if the consultant is regarded as an employee. Employment taxes and National Insurance Contributions must be withheld through PAYE.
What advantages can consulting agreements offer?
The consulting agreement may be helpful if you simply need a consultant’s expertise or set of skills occasionally. When it comes to a legitimate consultant arrangement, many of the legal responsibilities and liabilities are different from those that apply to an employment connection. You have more control over the terms of the connection because they become more adaptable.
What are the disadvantages of a consulting contract?
Businesses have a much harder time managing consultants as employees or other types of personnel. Because consultants are not generally obligated to maintain the integrity of your business data, you may want to incorporate provisions in the consultancy agreement that safeguard your sensitive data in order to protect your business. It is important that you are aware of the fact that if you give a consultant more authority, you might end up having them regarded as an employee if you do so.
A PSC is a very useful tool for managing your business, but there are also some additional responsibilities you need to take into account if you hire a consultant through it due to the IR35 regulations, which we previously discussed.