Businesses hire people through consultancy agreements so that no employment tie is established. Before describing some of the clauses that may be in a consultancy agreement, our employment law team discusses the various forms of consultation agreements, their advantages and disadvantages.
Individual consulting agreement for the self-employed
Between a company (the customer) and a self-employed independent contractor is one type of consultancy agreement india (the consultant). With the client, the consultant signs a contract to provide services in return for payment. The consultant is an independent contractor and will be responsible for filing their own income tax returns.
Consulting Agreement for a Personal Service Firm
A consultant arrangement through a personal service firm is another typical arrangement for consulting services (PSC). In this kind of arrangement, the consultant owns a service business and serves as both its single director and employee. Instead of the consultant and the client entering into a contract, it is the consultant’s PSC and the client. After receiving an invoice for the personal services rendered to the customer, the consultant’s PSC is paid by the client.
Medium and large enterprises should be aware that consultants hired through their PSC may be treated as “employees” for tax purposes under IR35. A “Status Determination Statement” must be created by the customer by April 2021 for each consultant they work with in this manner. Whether the consultant is truly self-employed or is actually an employee for tax purposes must be disclosed in the SDS, among other things. If the consultant is regarded to be an employee, income tax and employee NICs must be withheld through PAYE by the “fee-payer,” who in some situations is also the customer.
What advantages can consulting agreements offer?
If you just occasionally want a consultant’s particular area of expertise or set of talents, consulting agreements may be helpful. Many of the legal responsibilities and liabilities that apply to an employment connection do not apply to a legitimate consultant arrangement. As a result, they become more adaptable and you have more leeway to define the terms of the connection.
What Are the Disadvantages of a Consulting Contract?
Consultants are much harder for businesses to manage than employees or other types of personnel. You may want to incorporate provisions in the consultancy agreement that safeguard your sensitive business data because, in general, consultants will not be subject to implied responsibilities of integrity or secrecy. You should be mindful that any provision that gives you more authority over the consultant raises the possibility that they will be regarded as an employee.
The additional responsibilities imposed on you by IR35, which were previously discussed, must also be taken into account if you hire a consultant through a PSC.