What is a consultancy agreement?
A consultancy agreement is a set of terms and conditions for the services provided by a consultant or freelancer to their client. It clarifies the basic terms of the relationship in relation to the work that will be done, fees payable and other commercial terms of the arrangement. Most importantly, it also includes terms to protect the parties (eg by limiting their liability and being clear about the grounds on which the relationship can be terminated). Our consultancy agreement template UK will help you to create a bespoke contract for your arrangement.
When should I use a consultancy agreement?
You should use a consultancy agreement if you are a consultant being hired to perform services for a client or if you are the client hiring a consultant to perform services and the consultant does not provide you with a set of their terms and conditions.
Make your own consultancy agreement template UK
To make your own bespoke consultancy agreement, simply select the consultancy agreement template that’s most appropriate for you, fill in a short questionnaire and download your finished agreement for signature!
What terms and conditions should I include in my consultancy agreement template UK?
There is no universal model for a consultant’s standard terms and conditions and the specific terms that you include in your consultancy agreement will depend on the nature of the services being delivered. In general, however, it should include the following key provisions:
- the names of the parties;
- the services to be provided and how any variations or extras will be dealt with;
- who will provide any necessary equipment;
- the consultancy fees, charges and expenses;
- payment terms;
- responsibility for breaches or failures under the contract;
- protection of confidential information;
- intellectual property rights; and
- data protection clauses.
Our consultancy agreement templates allow you to set out these terms and more.
What information should I include in my consultancy agreement about the services to be provided?
Make sure your consultancy agreement template UK includes a clear description covering all of the services that will be provided under the contract. This includes how much time will be spent delivering the services, a time frame for completion, a place for performance and the standard of service agreed. It is important for the consultant to include a clause providing for them to be given the opportunity to rectify any breaches of their performance of the services before their client is able to claim damages for that breach. The consultant should also check that it is clear how any additional work that may be required by the client once they have started will be dealt with. For example, if it will not be included in the original price, ensure that it is clear what the mechanism will be for determining any additional cost (eg by reference to an hourly rate). The agreement should also set out the client’s obligations, for example to ensure that they cooperate with the consultant in performing the services and pay invoices on time.
Who should provide the equipment required to perform the services?
In most cases it will be appropriate for the consultant to provide their own equipment and materials when performing services.
How should the fee be calculated?
You should agree how the fee will be calculated, whether by reference to a fixed rate of pay (eg an hourly rate) or a fixed fee. If a fee estimate is provided, the agreement should clearly state that this is subject to change depending on different variables, such as the services taking longer to complete than anticipated. If the consultant is registered for VAT, the fee will be deemed to be inclusive of VAT unless specified otherwise in the agreement. Companies with a turnover of more than £85,000 are required to be VAT registered; see VAT invoicing for further guidance.
What should the payment terms be in my consultancy agreement template UK?
Your agreement should clearly set out when and how the client will be invoiced and when and how payment is expected. Where the client is late in paying invoices, the consultant can charge statutory late payment interest on those invoices, or a rate of interest could be specified in the contract. It is recommended that any rate specified is not excessively over the Bank of England base rate; 4 to 8% over the base rate is standard in most industries. See Charging interest on late payments for further guidance about charging interest on late payments.
Who is responsible for paying the consultant’s expenses?
Out-of-pocket expenses can be any expenses incurred in the performance of the services, including fees for external professional services, the cost of providing facilities, costs relating to marketing, communication and publicity services, or other office and administrative charges. You should ensure that they are clearly defined in your consultancy agreement. Who pays out-of-pocket expenses will be a matter for negotiation.
Can the consultant exclude liability for breaches or failures under the contract?
The consultant is likely to want to exclude or limit liability to their client. Such terms are often called exclusion or exemption clauses. To be legally effective against the client, assuming the client is a business, these terms must be reasonable and very clear about what they cover. Bear in mind that you cannot exclude liability for death or personal injury resulting from negligence.
It is important for the consultant to include a clause providing for them to be given the opportunity to rectify any breaches of their performance of the services before the client is able to claim damages for that breach. This is because it is likely to be cheaper for the consultant to rectify the breach themselves than to pay the costs of another contractor doing so if the client claims damages for breach of contract. Additional rules apply if the client is not a business, which are not covered in this guide. The consultant should also consider including a provision to ensure that their liability under or in connection with the contract will not exceed the total of their fee. In any event, consultants are strongly advised to take out professional indemnity insurance (also referred to as PI cover) to protect against the risk of the client bringing a claim against them.
What indemnities should be included in my consultancy agreement template UK?
The consultant could consider including indemnity provisions whereby their client will indemnify them against any losses or liabilities faced in certain circumstances. Our pro-consultant UK consultancy agreement templates include indemnities from the client against any losses or claims that the consultant faces as a result of the information being provided by the client causing damage to the consultant or anyone else (eg because it causes the consultant to infringe someone else’s intellectual property rights).
The client may also ask the consultant to indemnify them for any liability they incur due to the consultant’s breach of the agreement or breaches of third party intellectual property.
How will my confidential information be protected under my consultancy agreement?
Your consultancy agreement should contain provisions requiring both parties’ confidential information to be kept confidential by the other party at all times. These clauses typically continue after your contract comes to an end, unless the confidential information in question becomes public knowledge through other means.
Who owns the intellectual property created?
In general, intellectual property created by the consultant belongs to the consultant, unless you agree otherwise before the intellectual property is created. In any event, it is best practice to make this clear in your consultancy agreement. If intellectual property is important to the client, they are likely to want to negotiate this point to ensure that they own any intellectual property the consultant creates during the course of providing the services.
What data protection clauses do I need to include in my consultancy agreement?
Failure to comply with your data protection obligations can have serious financial and reputational consequences for your business, including fines of up to €20 million or 4% of your global annual turnover. For full guidance about your data protection obligations when sharing personal data, see Key obligations when sharing personal data.
Do I need a data processing agreement when I am providing consultancy services?
In addition to the general data protection clauses (see above), if you will be sharing personal data during the consultancy arrangement (for example, data about your customers or staff), you will need a specific data processing agreement in place to ensure the proper use of that information in accordance with data protection law. You should use a data processing agreement, which is usually included as an additional agreement, known as an addendum, to your consultancy agreement.
Failure to comply with your data protection obligations can have serious financial and reputational consequences for your business, including fines of up to €20 million or 4% of your global annual turnover. For full guidance about your data protection obligations when sharing personal data see Key obligations when sharing personal data. For template data processing terms you can enter into where one of you is the data controller and the other is a data processor, see Template data processing agreement.
Does the consultant have to personally do any agreed work?
Freelancers, by definition, work for themselves, whether they trade under their own name or are employed by a company that they have set up. Legally, this means that any agreement they enter into to produce a piece of work is not personal to them, ie they are usually free to subcontract some or all of the work if they wish to do this. In practice, if the client does insist that the consultant personally performs the work, the consultant may be considered to be a worker or employee of the client with the associated rights and tax consequences which that entails.
Can the client prevent the consultant from working for other businesses?
Freelancers are businesses in their own right and should be free to choose whether they work for other businesses. In the consultancy agreement, a client may seek to prevent the consultant from undertaking other work which would represent a conflict of interest.
Will the IR35 tax rules apply to my consultancy agreement?
The IR35 tax rules will apply if:
- the consultant is providing services to a client through an intermediary company (eg a personal services company); and
- the consultant is considered to be ’employed’ by the client for tax purposes.
The rules will not apply if the consultant is genuinely a self-employed consultant (eg a sole trader).
If your arrangement does fall within the scope of the IR35 rules, the consultant would have to pay income tax and national insurance on their fees, as if they were an employee of their client.
For more information about how to determine whether the IR35 rules apply and for guidance about who is responsible for determining whether the rules apply and how this is changing from 6 April 2021, see our Q&A on Consultancy services.