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Consultancy Agreement

A consultancy agreement is used when one company engages another (or a personal service company) to deliver advisory or professional services over time. Unlike a freelance agreement, it is a B2B framework — typically written as a master services agreement with individual Statements of Work bolted on. This template is drafted under English law and reflects UK-specific concerns: IR35 status, VAT treatment, late payment interest, right of substitution, and IP assignment on payment.

When do you need this?

Typical use cases

  • You run a consultancy and are agreeing a framework with a new client
  • You engage external strategic, IT or financial advisors
  • You need a master agreement that individual SOWs can attach to
  • You want a right of substitution clause to support outside-IR35 status
What the contract includes

The contract covers

Master services structure with reference to SOWs
Day rate exclusive of VAT
Billing frequency and payment terms
Late payment interest under the Late Payment of Commercial Debts (Interest) Act 1998
Reimbursable expenses at cost with prior approval
Termination for convenience on notice, and immediate termination for material breach
Independent contractor status confirmation and IR35 note
Right of substitution to support outside-IR35 characterisation
IP assignment on payment with pre-existing IP carve-out and licence-back
Confidentiality with 2-year post-termination survival
Liability cap at 12 months of fees, with statutory carve-outs
Governing law and jurisdiction — England and Wales

Legal basis

This template is drafted under the laws of England and Wales. It reflects standard commercial practice for B2B professional services engagements and takes account of the off-payroll working rules (IR35, as codified in Part 2 Chapter 8 and Chapter 10 of the Income Tax (Earnings and Pensions) Act 2003), the Late Payment of Commercial Debts (Interest) Act 1998, and the Copyright, Designs and Patents Act 1988. Sector-specific consulting (regulated advice, medical, legal) requires additional professional-body compliance.

Questions about consultancy agreement

Frequently asked questions

Do I need this and separate Statements of Work?
Yes — the master agreement fixes the commercial and legal architecture (fees, IP, liability, termination), while each SOW describes the specific engagement (deliverables, timeline, milestones, acceptance criteria). This structure lets you start new pieces of work quickly without renegotiating fundamentals each time, and keeps the master agreement stable across multiple engagements.
How does IR35 apply to a consultancy engagement?
Since April 2021, medium and large private-sector clients must determine whether an off-payroll worker (typically a personal service company consultant) is inside or outside IR35. If inside, the client must operate PAYE on payments. The right of substitution in clause 4.3, together with genuinely independent working practices, supports outside-IR35 status — but the contract is only one factor. The reality of the engagement matters most; HMRC uses the CEST tool as an initial indicator.
Can the consultant refuse to do work under the master agreement?
Yes. Under this framework, no work is committed until a specific SOW is signed. The master agreement sets the terms on which work can be done but imposes no obligation on either party to enter into any particular engagement. This mutual absence of commitment strengthens the argument that there is no mutuality of obligation for IR35 purposes.
Why is VAT specified separately from the day rate?
In B2B engagements, the client typically recovers VAT as input tax, so quoting the day rate exclusive of VAT is standard and avoids surprises. The consultant charges VAT on top if VAT-registered (mandatory above £90,000 turnover from April 2024). If the client is not VAT-registered or in a partially exempt sector, quote inclusive to avoid ambiguity.

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