A consultancy agreement, also known as a freelancer or independent contractor agreement, defines the terms on which a self-employed individual provides services to a client’s business. It covers what work will be done, payment terms, who owns any intellectual property created, how confidential information and data are handled, and each party’s liabilities. Crucially, it clarifies that the consultant is not an employee. These agreements give businesses flexible access to specialist skills while protecting both parties by clarifying expectations and legal responsibilities.

Whether you are a consultant offering your services or a business hiring external expertise, a well-drafted consultancy agreement is essential to avoid disputes, ensure the work product is owned by the right party, and stay on the right side of tax and employment laws (like IR35 off-payroll rules).

Below, we explain in detail what consultancy agreements are, provide real-world examples across industries, compare operating as an individual versus through a service company (including tax and liability implications), and break down key clauses you should include. We also highlight why getting these terms right, especially around intellectual property, liability, payment, data protection, and IR35, is so important.

Finally, we point you to tools such as our AI contract drafter, which is great for scoping out requirements, and our solicitor-delivered Gold and Platinum packages that provide a solid consultancy agreement tailored to your needs.

What is a Consultancy Agreement?

A consultancy agreement is a legal contract between a client (such as a company) and a self-employed individual or their company, under which the individual provides specific services or expertise as an independent contractor. Unlike an employment contract (a “contract of service”), a consultancy agreement is a “contract for services”, a commercial agreement where the consultant is not on the client’s payroll but is engaged for a project or a fixed term. In practice, this allows businesses to obtain skills they lack in-house without hiring an employee and gives consultants the freedom to work with multiple clients.

Real-World Examples

Consultancy agreements are used in virtually every sector. For instance, a tech startup might hire a software developer as an independent contractor to build a prototype app. A creative agency could hire a freelance graphic designer or marketing consultant for a campaign. In healthcare, a hospital might engage an independent specialist doctor or consultant nurse for a short-term program or to advise on process improvements. A school or university could contract with an education consultant to develop a new curriculum or provide teacher training.

In each case, the consultancy agreement defines the scope of work, timeline, and deliverables, and sets out terms such as payment and ownership of any work product. Using a consultant, the organisation gains targeted expertise for the duration needed, without the commitment and overhead of permanent employment.

Why Businesses Use Consultants

Engaging consultants or freelancers can be highly beneficial. It gives companies access to specialised skills and fresh perspectives only when needed, avoids the cost and effort of recruiting a full-time employee, and provides flexibility to scale expertise up or down quickly. You only pay for the project or hours required, and consultants are typically focused on delivering results for the task at hand. This makes consultancy ideal for short-term projects or filling skill gaps.

For consultants, operating independently allows freedom to choose projects, potentially higher rates than salaried work, and control over how and when the job is done.

However, using consultants also comes with critical legal considerations. Chief among these are the distinctions between a genuine independent contractor and an employee and the tax and liability implications of that status. Authorities can penalise businesses that incorrectly treat what are really employees as consultants. Therefore, both parties must have an explicit, written agreement that defines the relationship and addresses key issues like employment status, tax responsibilities, intellectual property ownership, confidentiality, and liability. A well-drafted consultancy agreement protects your interests, reduces the risk of misunderstandings, and can even determine how disputes will be resolved if things go wrong.

Operating as an Individual vs. Through a Service Company

When setting up a consultancy arrangement, one major decision for a freelancer is whether to contract directly as an individual sole trader or to provide services through a limited company (often called a Personal Service Company or PSC). This choice has significant tax, liability, and commercial consequences for both the consultant and the client hiring them.

Engaging as an Individual

In the classic scenario, the client contracts directly with you as a self-employed consultant. You are paid gross (no tax deducted) and account for your income tax via self-assessment. If truly self-employed, payments to you are not treated as salary for tax; you handle your Income Tax and National Insurance Contributions (NICs) and register for VAT if over the threshold. From the client’s perspective, this direct relationship means they have a contractual link with the person doing the work, making it easier to enforce obligations like confidentiality or intellectual property assignment directly against the individual if needed.

However, the contract must clarify that you are an independent contractor responsible for your tax (see IR35 below). If HMRC or a court later decides that the working relationship was effectively one of employment, the client could face liability for income tax, NICs, and the individual might gain employee rights.

Note: If an individual is engaged directly, the IR35 legislation (which targets intermediaries explicitly) isn’t invoked in the same way, but the risk of “disguised employment” still exists. The hiring business must still assess whether the consultant is genuinely independent or should be treated as a worker/employee.)

Engaging via a Service Company (PSC)

Many consultants operate through their own limited company. The contract is between the client and the consultant’s company, and the individual performs the work as an employee or director.

Using a PSC can have advantages for the consultant. It can be more tax-efficient, since the company can pay the individual via dividends or salary (potentially reducing tax if structured well), and it can limit personal liability, as the company is a separate legal entity. Indeed, consultants often choose the PSC route to limit their personal exposure. Any legal claims would initially be against the company, potentially shielding the individual’s assets. Some clients (especially larger companies) also prefer dealing with a company for administrative reasons or because their policies require contractors to bill via a company.

However, using a service company triggers additional compliance considerations, particularly the IR35/off-payroll working rules (discussed in the next section). In the UK, if a medium or large private-sector client engages a worker through the worker’s company, the client must assess the worker’s employment status for tax purposes under the off-payroll rules.

If the engagement is effectively like employment, the client may have to deduct PAYE tax and NICs from payments to the PSC (treating the consultant as a “deemed employee” for tax). If the client is small (per Companies Act criteria), the off-payroll rules don’t shift the burden. Instead, the PSC is responsible for determining IR35 and accounting for tax accordingly. In other words, under IR35 (Chapter 8 ITEPA), the intermediary (the consultant’s company) must decide if, were it not for the company, the individual would be an employee of the client. If yes, the PSC must treat the fees as a salary and pay appropriate tax.

From the client’s perspective, engaging via a PSC has pros and cons. On one hand, the consultant’s company may be responsible for its tax and NICs, and the consultant is not on your payroll. On the other hand, there is no direct contract with the individual consultant, only with their company. This can complicate enforcement of certain obligations, for example, ensuring the actual person doing the work keeps information confidential or hands over IP rights.

A common solution is to have the individual sign a side letter or include provisions in the contract that bind the individual; for example, the consultant personally signs an undertaking to comply with confidentiality and IP assignment.

Additionally, due to IR35 rules, some larger clients have reduced use of PSC contractors or insist on contractors being outside IR35, using factors like allowing substitution (see below) because if they are deemed “inside IR35,” the client becomes responsible for employment taxes.

All these issues mean that if you are a business hiring a consultant’s service company, you must do due diligence on the employment status and perhaps include indemnities in the contract, such as requiring the PSC to reimburse you for any tax/NICs or penalties if HMRC later deems the consultant to have been an employee.

If you operate via a company, ensure your contract addresses the above points. The client may ask for warranties or indemnities that your company will handle all tax obligations and may require the individual consultant (you or your staff) to sign acknowledgements about IP and confidentiality. If you’re the hiring business, ensure the contract (or a side letter) binds the actual person performing the services to key obligations, since your agreement with the PSC alone might not cover everything you need.

IR35 and Off-Payroll Working Rules (Employment Status)

IR35, the “off-payroll working rules”, is a key UK tax law framework that consultants and businesses must understand when entering a consultancy agreement. In simple terms, IR35 legislation aims to distinguish between genuine self-employment and “disguised employment” for tax purposes. It prevents individuals from avoiding employee taxes by providing services through an intermediary (typically a personal service company) when the reality is that they are working as if they were an employee of the client.

Under IR35, if the arrangement is such that, but for the intermediary, the individual would be an employee of the client, then essentially the earnings should be treated as employment income.

Initially, under Chapter 8 of ITEPA 2003 (the “original IR35” rules), the onus was on the intermediary (the contractor’s company) to make that determination and account for tax accordingly. Since April 2021, however, medium and large private-sector clients have had to assess the status of contractors they engage with through companies (Chapter 10, “off-payroll” rules). If the client decides the contractor is effectively an employee, the client (or agency/fee-payer) must deduct income tax and NICs as if paying a salary. For small clients, the original IR35 rules still apply (the contractor’s company must decide and pay accordingly). Public sector engagements have had similar laws since 2017.

This matters in a consultancy agreement because both parties need to establish the status right from the start.

If a contractor is later deemed “inside IR35” (i.e. essentially an employee for tax), there can be significant financial consequences in the form of higher taxes, penalties, and the individual might claim employment rights. The agreement alone cannot override the factual reality of the working relationship, but its terms can provide evidence of genuine independent contractor status (or lack thereof). HMRC and courts will look at factors such as:

• Substitution: Does the consultant have the right to send a substitute to do the work instead of doing it personally? If a contractor can freely appoint a substitute, it strongly indicates self-employment. By contrast, if the individual is required personally and cannot be replaced (or any substitute needs client approval only in limited circumstances), it suggests an employment-type relationship, and the substitution clause might be considered a sham. For example, a true consultant might agree to deliver a service but be allowed to hire an assistant or send a colleague in their place if unavailable. Employees typically cannot send substitutes to do their job.
• Control: How much control does the client have over where, when, and how the work is done? The more autonomy the contractor has, such as setting their schedule, using their own methods or equipment, the more they look like an independent business. High client control (e.g. requiring 9-5 attendance, supervising closely, and integrating the person into the team) leans toward employment. Consultants should usually have flexibility in achieving the agreed results, subject to meeting the client’s objectives.
• Mutuality of Obligation: This is an employment concept. Is the client obliged to provide ongoing work, and is the individual obligated to accept it? In a consultancy, typically the engagement is project-based or time-limited; once the project is done, neither party expects further work (unless a new contract is agreed). There’s no open-ended commitment. In an employment, the employer must provide work and pay, and the employee must perform it continuously. A well-drafted consultant contract will avoid phrases that imply a continuing duty to provide work or exclusive services beyond the defined project.
• Integration: Is the consultant held out as part of the company, for example, given a job title, company email, appearing on the staff organisation chart? Generally, a consultant remains an external service provider. They may comply with necessary client policies (like health and safety and data protection) but shouldn’t appear indistinguishable from employees in day-to-day operations.

These and other factors, such as who provides the equipment, whether the individual markets their services to others, takes financial risk, etc, determine status. HMRC provides an online tool called CEST (Check Employment Status for Tax) to help evaluate these criteria.

Getting the contract terms right can help demonstrate a genuine independent contractor relationship. For example, including a broad substitution clause (and ideally exercising it in practice occasionally) is noted as one of the strongest indicators of self-employment. Avoid giving employment-style perks (no mention of “holiday pay,” sick leave, or pension in the contract) and avoid clauses like long notice periods, pay-in-lieu-of-notice, or garden leave, which are typical for employees and thus can undermine the “contractor” status.

The agreement should explicitly state that the consultant is responsible for their tax and NICs on fees earned. This clarifies the intent and is often included to allow the client to recoup any tax if authorities rule the person was an employee (some contracts have the consultant indemnify the client for any such tax claims).

In short, the consultancy agreement must be carefully drafted to avoid suggesting the individual is an employee. If you are unsure, it is wise to get legal advice because misclassification can lead to the individual claiming unfair dismissal, holiday pay, other rights, and HMRC pursuing back taxes.

The “off-payroll” rules essentially shift the IR35 compliance burden to the client for larger organisations. These rules were extended to the private sector in April 2021. Plans to repeal them in 2023 were dropped, so they remain in force. Medium/large businesses must have a process to assess contractor status and provide a Status Determination Statement (SDS) to the contractor. Small companies are exempt from off-payroll rules, but the IR35 obligations fall back onto the contractor’s company. In either case, IR35’s goal is to ensure that “if it looks like employment, tax it like employment”.

Key Terms and Clauses to Include in a Consultancy Agreement

Whether you are a consultant drafting your standard contract or a business preparing to hire a freelancer, there are core clauses that a solid consultancy agreement should contain. Below, we break down the key terms and why each is important. These clauses appear in most standard templates, but the exact wording should be tailored to your situation. We also highlight what each party (consultant and client) should pay attention to in each clause.

Scope of Work, Duties and Deliverables

Define the services clearly: The agreement should set out exactly what the consultant is expected to do, for example, “design a new company logo and branding guidelines” or “provide IT security advice and implement specified cybersecurity measures.” If necessary, this can be detailed in a Schedule. Clearly defining the scope of work and any key deliverables or milestones will manage expectations and reduce disputes about what is included.

Time commitment: If the engagement is hourly or day-based, you might specify the expected days per week or total hours per month, or that services are provided “as needed” up to a specific limit. If it’s deliverable-based, ensure there’s understanding of deadlines and quality standards. Consultant’s duties include reporting requirements (e.g. giving progress updates) or following specific professional standards. Be careful, as overly detailed or restrictive duties (micromanaging the work) might make the consultant look like an employee. The consultant should retain discretion in performing the services, whilst meeting the client’s objectives.

No implied employment perks: The contract should not include holiday, sick pay, or other employee-style benefits. Consultants are paid for services rendered, not given paid leave. Including such terms could indicate an employment relationship. For the client, this clause ensures the consultant can’t later argue they were entitled to employee benefits. For the consultant, it clarifies they have flexibility and are not tied to employee obligations beyond the agreed project.

Term and Termination

Clarify how long the engagement lasts and how it can end. This might be a fixed end date (tied to project completion) or an ongoing arrangement terminable by notice. Define the contract term (start and end date or a statement like “until the services are completed”).

Include a termination clause specifying how either party can terminate early. Commonly, either side may terminate by giving a specific notice period, such as 14 or 28 days. A shorter notice period generally supports independent status since long-term engagements with long notice start to look like permanent employment. You may also allow immediate termination for material breach of contract or insolvency of either party.

Consider what happens on termination: the contract should state any obligations on termination, such as the consultant returning client property or confidential information, delivering any work-in-progress, and an obligation on the client to pay any final invoice for work done up to termination. Also, address whether any parts of the contract (like confidentiality, IP rights, or non-solicitation clauses) will survive termination.

From the consultant’s perspective: A fair termination clause ensures you are not locked in too long and can disengage if the project isn’t working out (and likewise, the client can). Avoid agreeing to excessively long notice periods or onerous penalties for ending the contract.

From the client’s perspective: Ensure you have the right to terminate if the consultant isn’t meeting obligations or if business needs change. Also, make sure you get any work products back and that key clauses (confidentiality, IP assignment) still apply even after the contract ends.

Payment Terms and Expenses

One of the most important parts: how and when the consultant gets paid. To avoid any misunderstandings or cashflow issues, the contract should spell out:

• Fees/Rate: Is it a fixed project fee, a daily/hourly rate, or a retainer? For example, “£500 per day” or “£5,000 for the entire project, payable in two instalments”. If VAT applies (e.g. the consultant is VAT-registered), the contract should state whether fees are plus or inclusive. Consultants should clarify VAT to avoid losing 20% of their income to tax if it wasn’t explicitly added.
• Invoicing schedule: When will invoices be issued and when will they be due? Commonly, consultants invoice monthly, at milestones, or upon completion. The contract might say, “Consultant will invoice monthly in arrears, and the client must pay within 14 days of the invoice date.” Clear deadlines for payment are essential. From the consultant’s side, shorter payment terms mean better cash flow; from the client’s side, you might align payment on delivery of work or specific results.
• Late payment: Including a clause about interest or late fees is wise in case the client pays late. Under UK law, businesses can charge interest on late payments (statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998). Often, contracts state that interest at X% above the base rate will accrue on overdue amounts. Mentioning this can discourage late payments.
• Expenses: If the consultant will incur costs (travel, accommodation, materials), the contract should state whether the client will reimburse them and any conditions. For example, “Any pre-approved travel expenses will be reimbursed at cost, against receipts, up to a cap of £X.” Be specific about what requires prior approval. This protects the client from unexpected bills and ensures the consultant isn’t out of pocket for agreed expenses.

By detailing payment terms, you avoid awkward conversations and disputes later. The consultant can plan their finances, and the client knows what they’re paying for. Always ensure both parties have a common understanding of the fee structure before signing.

Intellectual Property Rights

Who will own the work product or deliverables created? This is a critical issue, especially in fields like tech, design, writing and research, where the consultant might create software, content, designs, or inventions. Under UK law, if you hire an independent contractor (consultant) to make something, the default position is that the consultant owns the intellectual property (IP) in what they create, unless the contract says otherwise. This differs from employees. Works created by an employee in the course of employment usually belong to the employer by default. Not so with freelancers.

Therefore, the consultancy agreement must explicitly address IP ownership. Typically, there are two main approaches:

• IP Assignment to the Client: The contract can state that all IP rights in any materials or works created by the consultant during the engagement are assigned to the client. This means the client will own the copyrights, inventions, designs, etc. Often, the clause is worded such that the consultant “hereby assigns (by way of present and future assignment) all intellectual property rights in the works to the client”. If a personal service company is involved, the agreement might include a warranty that the individual has assigned all their rights to that company, which in turn assigns them to the client. The contract should also have the consultant agree to sign any further documents to perfect the transfer (for example, signing a patent application) and waive any moral rights, such as the right to be identified as the author, which could otherwise prevent the client from modifying the work freely.
• Licence to the Client: Alternatively, the consultant might retain ownership in some arrangements but grant the client a broad licence to use the work. For example, a freelance photographer might keep the copyright to their photos but license the company to use them in perpetuity for specific purposes. Or a consultant might want to reuse generic parts of their work for other clients (like a code library or template). In that case, the contract can grant the client a perpetual, worldwide, royalty-free licence to use the work, while specifying that pre-existing IP remains with the consultant. This approach is less common when the work product is specifically created for the client’s exclusive use, but it can be a middle ground.

For most business hires, especially in tech and creative projects, clients will prefer an outright assignment of intellectual property to avoid doubt that they own the software, designs, or inventions they’re paying for.

From the client’s perspective, ensure the contract clearly states you get ownership (or at least necessary rights) to the deliverables. Otherwise, you might pay a consultant to develop something, only to find you need their permission to use or change it later. Also consider including an IP indemnity: the consultant promises that their work won’t infringe on anyone else’s IP, or they will cover the client’s losses if it does.

From the consultant’s perspective, if you assign all IP, be aware you generally won’t have rights to reuse that work elsewhere (unless you negotiate the right to retain a copy for portfolio or reuse generic know-how). Ensure the contract at least allows you to maintain ownership of your pre-existing IP (anything you brought to the table that wasn’t created for this project). Good contracts specify that any of the consultant’s tools, templates, or materials existing before the project remain theirs, and only the new outputs are assigned. If you want to re-use parts of the work for other clients, consider granting a licence instead of an assignment. Be aware that many clients will insist on full ownership for bespoke work.

One nuance to note: some lawyers caution that requiring a consultant to assign all IP could be seen as a factor toward employment, since owning the product of the work is more like an employer’s stance. However, this is usually addressed by careful drafting. It’s common to include IP transfer clauses; just be mindful not to exert so much control that it undermines the independent status.

Confidentiality

When consultants engage with a business, they often gain access to sensitive information: client lists, business strategies, financial data, trade secrets, etc. Unlike employees, consultants are not automatically bound by any implied duty of confidentiality in common law. Therefore, it is essential to include an express confidentiality clause in the agreement.

The confidentiality clause should:

• Define “Confidential Information” – typically any information relating to the business, clients, or projects that is not public, whether in oral or written form. It can cover things the consultant learns or creates during the engagement.
• Obligate the consultant to keep such information secret and use it only for the purpose of the engagement, both during the contract and after its termination. Often the clause will state that the consultant cannot disclose information to any third party without permission and must take reasonable security measures to prevent leaks.
• Allow certain exceptions – e.g. information that becomes public (through no fault of the consultant), or disclosures required by law (if the consultant is compelled by a court or regulatory request, they should be allowed to comply after notifying the client if possible).

It is common for this section also to require the consultant to return or destroy confidential materials at the end of the project.

For the client, a strong confidentiality clause protects your business secrets.

For the consultant, it’s usually straightforward; just be sure you are not accidentally prohibiting use of skills and knowledge acquired. The clause should ideally clarify that using general know-how and experience is not a breach, as long as specific confidential information is not used.

In addition, consider restrictive covenants. Sometimes clients want to prevent a consultant from competing or poaching clients/employees. Be cautious. An absolute non-compete during or after the engagement might risk implying an employment-like control and could be unenforceable if too broad.

However, a limited non-solicitation clause, for example, the consultant agrees not to solicit the client’s customers or staff for a certain period after the project, can be included if reasonable.

From a consultant’s view, any such restriction should be narrowly tailored (both in duration and scope) to avoid unfairly limiting your ability to work for others. From the client’s view, if the consultant will learn key client connections or have significant influence, a non-solicitation helps protect your business relationships.

Data Protection

If the consultant will handle or have access to personal data, for example, a marketing consultant handling customer data, or an IT contractor with access to employee records, you must address data protection compliance.

Under UK GDPR and the Data Protection Act 2018, if the consultant is processing personal data on behalf of the client (acting as a data processor), the law requires certain terms to be in the contract. These include specifying the subject matter and duration of processing, the nature and purpose of it, the types of personal data, and obligations to act only on the client’s instructions. The contract should also oblige the consultant to implement proper data security measures and assist the client in compliance, such as, helping with subject access requests or data breach notifications as applicable.

If the consultant handles personal data, a schedule to the agreement can usually set out the details of processing. Also, if the consultant might engage any sub-processors (like an assistant or cloud service), the client’s written authorisation is needed under GDPR. All these points can be covered either in the consultancy agreement or a separate Data Processing Agreement (DPA) attached to it.

Liability and Insurance

No one enters a contract expecting something to go wrong, but it’s crucial to agree on who bears the risk if things go wrong. In a consultancy scenario, possible risks include the consultant’s work causing the client financial loss, the consultant breaching someone’s rights, or failing to perform as promised. Key sub-clauses here are indemnities and limitations of liability, as well as insurance requirements:

Indemnities

An indemnity is a contractual promise by one party to compensate the other for specified losses.

Clients often seek indemnities from the consultant for certain things. For example, if the consultant’s negligence or misconduct causes a loss, or if the tax authorities claim the client should have paid employment taxes, the consultant will reimburse the client. Also, as noted under intellectual property (IP), above, often an indemnity is sought for IP infringement claims; for example, if the consultant delivers something that infringes a third party’s copyright, the consultant must cover the costs.

From the client’s perspective, indemnities provide stronger and more straightforward recourse than ordinary damage claims.

From the consultant’s perspective, be cautious: indemnities can create open-ended financial exposure. You may want to narrow any indemnity. For instance, indemnify for losses that directly result from your breach of contract or negligence, excluding indirect/consequential losses. Some consultants negotiate out of indemnities entirely, but many consultancy contracts will include at least a tax indemnity (shifting liability if HMRC reclassifies the consultant as an employee).

Limitation of Liability

This clause caps the damages one party can claim from the other. As a consultant, you would typically include a cap on your liability, often tied to the fees paid. For example, liability is limited to the fees you’ve received or a multiple of them. You might also exclude liability for certain losses. Typical exclusions are indirect or consequential losses, loss of profits and loss of opportunity.

From the consultant’s view, without a cap, a single mistake could bankrupt you if the client’s losses are significant. Many consultants cap liability at 1x or 2x the contract value, or an absolute figure.

From the client’s view, you want any cap to be reasonable relative to the risk. Sometimes clients insist on higher caps or unlimited liability for certain things like death/personal injury, which by law can’t be limited for negligence, or confidentiality breaches.

It is a balancing act. The client wants to be protected, but a consultant cannot take on infinite risk, especially for a small fee. A well-drafted limitation clause finds a fair middle ground and is “there to protect both sides”. Without it, the consultant might be unwilling to do the work or might charge a “risk premium”.

Insurance

To further manage risk, clients often require the consultant to maintain appropriate insurance cover, primarily if operating through a company. This can include Professional Indemnity Insurance (to cover claims of professional negligence or errors), Public Liability (covering injury or property damage to third parties), and any other relevant insurance like Cyber insurance if data is involved, or Employers’ Liability if the consultant has their own employees.

The contract can specify minimum coverage amounts; for example, “Consultant shall maintain professional indemnity insurance of at least £1 million”. It may also require the consultant to provide proof of insurance upon request.

From the client’s side, this ensures that if something goes wrong, there’s a fund (the insurer) to pay for losses.

From the consultant’s side, having insurance is a prudent safety net and may be mandatory in your industry anyway. The client may want to be noted on the policy or at least be informed if it lapses.

In summary, the liability clause defines the scope of responsibility and financial risk. A fair approach is that the consultant stands behind their work and will cover direct losses caused by their breach or negligence, but the exposure is capped, so it’s not ruinous, and certain extreme scenarios are carved out.

Always consider the worst-case scenarios and ensure the contract doesn’t leave you (on either side) unfairly exposed.

Status of the Consultant (No Employment)

It is common to include a clause stating that the consultant is an independent contractor, not an employee or agent of the client. This clause might also say the consultant is free to work for others (i.e. non-exclusive services) and that they are responsible for paying their own taxes and National Insurance.

For example, “Status: The Consultant is an independent contractor. Nothing in this agreement shall render them an employee, agent, or partner of the Client. The Consultant is responsible for all income tax and National Insurance contributions on fees paid under this agreement and will indemnify the Client against any claims for the same.”

While such a declaration isn’t decisive (tribunals look at actual practice over contract wording), it is still a useful confirmation of intent. It could help prevent confusion. The consultant cannot later say, “I thought I was an employee,” if they explicitly agree that they are not. It also provides the basis for the tax arrangement (the consultant agrees to sort out their HMRC payments). Many consultancy agreements include an indemnity in this section, requiring the consultant to reimburse the client if, for some reason, HMRC reclassifies the arrangement, and the client has to pay employer taxes.

Additionally, this section can mention that the consultant will not hold themselves out as having authority to bind the client (since they’re not an agent except as needed to perform the work). It can also encourage the consultant to take their own advice on tax status if needed.

From the consultant’s perspective, understand that this clause means you won’t have employment rights; no unfair dismissal protection, holiday/sick pay, etc. You trade those for the freedom and tax advantages of contracting. Ensure you operate like a business (multiple clients, etc.) to maintain that status.

From the client’s perspective, this clause is a line of defence to show that you intended a B2B relationship. But remember, you must also execute it in practice; for example, don’t treat the contractor exactly like staff.

Other Key Clauses

Finally, a good consultancy agreement will include some standard boilerplate clauses, and any additional terms needed for the deal. A few worth noting:

• Non-solicitation / Non-dealing: Besides confidentiality, you might want a clause preventing the consultant from soliciting your employees or clients for a period (e.g. 6-12 months after the project). This protects the client from the consultant taking business or talent away. It should be reasonable in time and scope to be enforceable. Consultants should ensure such a clause doesn’t unfairly hinder them (it should not prevent them from engaging with any clients they had independently or in an unrestricted market).
• No Conflict of Interest: The consultant might warrant that they aren’t currently doing any work that would conflict with the client’s project and will not improperly use any third-party confidential information in the work. Sometimes, an “other activities” clause will require the consultant to get consent before working for a client competitor during the engagement. This is a middle ground: it acknowledges the consultant can have other clients (good for self-employed status) but protects the client from direct conflicts.
• Assignment and Subcontracting: The client usually wants to prevent the consultant from assigning the contract or subcontracting the work without consent (aside from the agreed right of substitution). Conversely, the client might reserve the right to assign the contract benefit to an affiliate or if it sells the business. Include a clause clarifying these points.
• Dispute Resolution: It’s wise to determine how disputes will be handled. Many agreements have a simple clause: “If a dispute arises, the parties shall first attempt to resolve it by negotiation in good faith. If not resolved, either party may refer the matter to mediation or pursue legal proceedings.” You might choose to require mediation before court, or even specify arbitration, though for most small contracts, court is fine. Also include the governing law and jurisdiction (at British Contracts, we focus on the laws of the UK and will specify the laws of England and Wales or, if required, Scotland).
• Entire Agreement: A boilerplate but important clause stating that the written contract represents the whole agreement between the parties, superseding any prior discussions or emails. This helps prevent either side from later claiming “but you promised X verbally.” Everything agreed upon should be in the contract.
• Variations: A clause often says any changes to the agreement must be in writing (to avoid informal modifications).
• Third Party Rights: Typically exclude third-party enforcement (so only the signatories can enforce the terms, useful to clarify under the Contracts (Rights of Third Parties) Act 1999 unless you intend to give rights to someone else).
• Force Majeure: Many contracts include a force majeure clause excusing performance due to events beyond a party’s control (natural disasters, government lockdowns, etc.). It can be included to protect both sides from breach in such situations if relevant.

These “boilerplate” clauses handle “what if” scenarios. They can have real impact if a dispute arises, so don’t ignore them.

Using Templates vs. Bespoke Agreements

You might be tempted to grab a free consultancy agreement template online. After all, many of the clauses we discussed sound standard. While templates (including reputable ones from legal websites or industry bodies) can be a helpful starting point, be wary of a one-size-fits-all solution. Generic templates often use broad, stock language that may not fit your specific deal or industry. They might miss key protections that matter to you. For example, a template could omit a proper IP assignment clause or a liability cap, exposing one party. They may also not reflect the latest legal requirements, such as updated data protection language, or the nuances of IR35 if the template is old. It is rarely easy to ascertain the age of legal templates found on the internet or to obtain assurance that they have been professionally drafted or maintained up to date.

If you use a template, take time to tailor it to your arrangement’s particular services and risks. At minimum, consider having a legal professional review it. Remember, a consultancy agreement is there to protect both parties. Investing a bit of effort or money upfront to get it right can prevent far more expensive problems later.

Happily, modern tools and services make this easier than ever. Our platform offers options ranging from AI-assisted drafting to fully bespoke legal drafting packages.

Drafting Your Consultancy Agreement: AI Tools and Expert Help

Writing a consultancy agreement from scratch can feel daunting, especially if you’re not a lawyer. To help with this, British Contracts offers an AI Contract Drafter that allows you to generate a basic consultancy agreement draft in minutes. You enter the key details of your arrangement, and our custom AI will produce a first-draft contract covering the standard clauses discussed above. This can be a great way for freelancers and small businesses to get a workable agreement, which you can refine quickly. The AI drafter uses up-to-date English contract law and has been trained on quality legal documents.

For those who want more tailored protection, consider upgrading to our Gold or Platinum packages. The Gold Package offers a fixed-fee service in which an experienced solicitor will customise the agreement to your needs and ensure all the tricky points (like IR35, complex IP terms, unusual payment structures, etc.) are properly addressed. The Platinum Package goes even further; it includes everything in Gold plus multiple rounds of revisions and negotiation with the other party to the agreement, ideal for more complex or high-value consultancy arrangements. In either case, you benefit from a human expert reviewing and improving the contract, giving you confidence that your agreement is legally sound and precisely suited to your situation.

Both consultants and businesses will find that investing in a bespoke agreement, especially through an affordable fixed-fee service, can pay off by preventing disputes and ensuring compliance with the law.

For example, our lawyers can insert nuanced clauses to handle specific industry regulations, make sure any IR35 wording is correctly done, and advise on what liability cap is reasonable for your scenario. This level of customisation is what our Gold and Platinum packages are designed for.

Give our AI Contract Drafter a go or buy one of our fixed fee contract packages to engage an experienced specialist solicitor now.