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If you are selling your business but would like to stay on as a consultant to help the new owners, then it is advisable that you enter into a 'consultancy agreement' in order to clearly establish all your obligations and rights. We have listed below some important aspects that you need to consider before deciding whether staying on as a Consultant is the right approach for you.

1)     Have you looked into the tax position?

If the work you do as a consultant is going to be your primary work (i.e. you are not otherwise employed) then you will be seen as self employed by the tax man. It would therefore be your responsibility to submit your own tax return.

2)     Make sure you know your employment status

'Employees' are typically paid a fixed amount, while 'Consultants' are often paid by project or results as it is assumed that they are taking some financial risk rather than just being paid a salary. You will be working on and invoicing specific tasks given to you by the company who takes you on, and will therefore not be paid a monthly 'wage' but simply have your invoices settled.
You will have the status of 'self employed' and as such you will not have the normal employment rights enjoyed by 'employees' (or even 'workers', who still enjoy some holiday entitlements). You will not have a general right to not be unfairly dismissed nor will you be entitled to paid holiday (beyond the contents of the Consultancy Agreement).
If a dispute arises a Court or Tribunal will look at how you actually operate as opposed to what label has been given to you, and a properly drafted Consultancy Agreement should make it clear that you are self employed. Most likely a Consultancy Agreement will allow deduction from the Consultant's fee any sums that may be owed. Without this clause if the Consultant was deemed to be an employee or worker then the Company would be prevented by law from making any deductions to the fee.

3)     Accept you will only be able to advise, not action

The new owners of the business will want to ensure that you cannot make any decisions about how the business is run and are only able to advise. A well drafted Consultancy Agreement will ensure that you are not 'Commercial Agent' for the purposes of the Commercial Agents (Council Directive) Regulations 1993 (the Commercial Agents Regulations), thus excluding you from the ability to negotiate on behalf of the business.

4)     Consider whether you have the means to be a Consultant

  • Due to the self employed nature of a consultant please ensure that you are able to:-
  • Exercise control over the timing and method of your work. 
  • Provide your own facilities or equipment to perform the work.
  • Sub-contract (hire others) to assist or substitute in the work as required. 
  • Take on a degree of financial risk or accept responsibility for supervision of the work.

Whatever you are considering, please give David Heys at Lawson-West Commercial a call on 0116 212 1027 and we will gladly talk through the issues with you.