Every Contract a Consultancy Needs in the UK (2025)
Last updated: February 2025
Legal Requirements for a Consultancy
UK consultancies must comply with general contract law and the Supply of Goods and Services Act 1982, which implies that services will be carried out with reasonable care and skill. Professional consultancies in regulated fields (financial, legal, medical) have additional regulatory obligations. IR35 rules apply if the consultancy is a personal service company. UK GDPR compliance is essential as consultancies typically access client data. Professional indemnity insurance may be contractually or regulatorily required.
Essential Contracts
Sets out the scope of advisory services, fee basis (fixed, daily rate, or success-based), liability cap, and clear exclusions of what is not covered
Standard terms covering payment, confidentiality, intellectual property, limitation of liability, and professional indemnity for all engagements
Mutual NDA essential before any diagnostic or discovery phase where confidential business information is shared
Required under UK GDPR when accessing client systems or personal data during consultancy engagements
Recommended Contracts
If you bring in associate consultants, a proper subcontractor agreement with IP assignment and confidentiality clauses is essential
Licences your proprietary frameworks, templates, and methodologies to clients rather than assigning ownership outright
Standalone liability schedule capping exposure to fee value or insurance coverage, particularly important for strategic advice
Common Legal Risks for a Consultancy
- Negligence claims for advice that leads to client losses without proper liability caps
- Scope creep on advisory engagements where boundaries between included and excluded work are unclear
- IR35 investigations if operating through a PSC without genuine business-to-business characteristics
- Client reliance on informal advice given outside the engagement scope without documented caveats
- Intellectual property in proprietary frameworks being inadvertently assigned to clients
Industry-Specific Notes
Consultancies should clearly distinguish between advisory services (where liability for advice quality arises) and implementation services (where liability for delivery arises). Professional indemnity insurance is essential and most clients will require evidence of coverage. Management consultancies should consider membership of the Management Consultancies Association (MCA) for credibility.
FAQ
How should a consultancy limit its liability for advice given to clients?
Consultancy contracts should include a liability cap — typically limited to the fees paid or the value of professional indemnity insurance coverage. The cap should cover both direct losses and explicitly exclude consequential or indirect losses. Under the Unfair Contract Terms Act 1977, you cannot exclude liability for death or personal injury, and any other exclusion must be reasonable. A well-drafted limitation clause is your most important contractual protection.
Does a one-person consultancy need IR35-compliant contracts?
Yes. If you operate through a limited company and provide services to clients, IR35 potentially applies to every engagement. For medium and large clients, the client determines your status since April 2021. For small company clients, you self-assess. Your contract should reflect genuine self-employment characteristics, but HMRC will look at actual working practices. Having multiple clients, your own PI insurance, and bearing financial risk all support outside-IR35 status.
Should a consultancy assign or licence its intellectual property to clients?
Most consultancies should licence, not assign, their proprietary frameworks and methodologies. Assignment transfers ownership permanently, preventing you from using those materials with other clients. A licence grants the client the right to use specific deliverables while you retain ownership of your core IP. The engagement letter should clearly distinguish between bespoke deliverables (which may be assigned) and pre-existing consultant IP (which should be licensed).
Related Business Types
All the contracts a consultancy needs
AccountsOS generates UK-compliant contracts tailored to your business. From £10/month.
Get Started FreeThis is guidance, not legal advice. Consult a solicitor for complex matters.
View all business types