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Contracting/Employing an Individual Consultant

Contracting an Individual Consultant

Consultant or Employee?

If you are dealing with an individual whom you wish to retain as a self-employed consultant and who will spend a considerable amount of time on your business, a key objective may well be to avoid him inadvertently becoming classed either by HMRC as an employee for income tax and National Insurance Contribution (NIC) purposes, or, potentially, by an employment tribunal as an employee for the purposes of employment law.

Consultants sometimes use a personal services company (PSC) instead of acting on a self-employed basis. Your arrangements would in that case be made with the PSC not with the individual consultant. However, depending on the circumstances, use of a PSC may not necessarily avoid undesirable tax and NIC consequences.

There is no one test in deciding whether someone is employed or self-employed or whether use of a PSC will avoid such tax or NIC consequences, and so the whole nature of your arrangements with a consultant has to be carefully considered and professional advice must be taken on its structure and documentation.

We recommend that you read our IR35 and Self-Employment information pages which deal extensively with all aspects of engaging consultants.

Contractual Arrangements 

Dealing with an individual consultant may often commence informally. You should, however, resist the temptation to let the arrangement continue on such an undocumented basis. There should therefore be a written agreement with the consultant (or his PSC) in order to clarify your respective legal positions governing the relationship generally.

This agreement should cover (at the minimum) the following points:

  • the nature of the services to be provided;
  • the consultant's fees and expenses;
  • the duration of the arrangement;
  • the consultant's reporting, liaison and other personal obligations towards you;
  • the consultant's legal liability for his actions;
  • your respective rights in any intellectual property that the consultant may introduce, use or create during the relationship;
  • the consultant's confidentiality obligations;
  • restrictions on the consultant's right to work with competitors during and after his work with you; and
  • the consultant's obligation to return your documents and copies thereof when the job is over.

The IR35 & Self Employment group of documents in our Business folder contains a wide range of document templates for use when engaging individuals or companies as consultants.

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