Consultancy agreement essentials: Complete guide for Irish businesses

Frequently Asked Questions

Do I really need a written consultancy agreement, or is a verbal arrangement enough?

You absolutely need a written agreement. Verbal arrangements create significant legal and commercial risks, leaving you without evidence when disputes arise or memories differ about what was agreed. A written contract protects both parties and provides clear documentation if Revenue challenges the relationship or disputes occur.

Will I own the work my contractor creates if I pay them for it?

No, contractors automatically own all intellectual property they create unless your agreement explicitly transfers those rights to your company. Without written IP assignment provisions, you won't own the website, code, designs, or content you paid for, which creates serious problems when seeking investment or selling your business.

What happens if Revenue decides my contractor should have been classified as an employee?

Your company becomes liable for employer PRSI contributions (11.05%), employee PRSI (4%), PAYE income tax, and USC that should have been paid, plus interest and penalties. Revenue can assess these amounts going back four years or longer if they believe deliberate misclassification occurred, and the misclassified worker can also claim employment rights like unfair dismissal compensation.

What's the difference between how I pay a contractor versus an employee?

Contractors invoice you for their services and manage their own tax affairs, with no PRSI contributions or PAYE deductions by your company. Employees receive salary through payroll with PAYE deductions, paid leave, holiday pay, sick pay, and pension contributions handled by you as the employer.

Does my contractor need to charge me VAT on their invoices?

If your contractor is VAT registered, they must charge VAT on services at the appropriate rate. Your agreement should acknowledge that VAT will be added to fees where applicable, though contractors providing services from outside Ireland may not need to charge Irish VAT depending on reverse charge rules.

What should I include in the scope of services to avoid disputes?

Define precisely what the contractor will deliver with specific deliverables, quality standards, timelines and milestones, location where work will be performed, and hours of availability if relevant. Vague descriptions like "marketing services" or "software development" create disputes about what's included and allow scope creep.

Do I need special provisions if my contractor will handle customer data?

Yes, if the contractor processes personal data on your behalf, you must include GDPR compliance provisions establishing them as a data processor. Required provisions include processing only on your documented instructions, maintaining appropriate security measures, assisting with data subject requests, and deleting or returning personal data after services end.

How much notice do I need to give to terminate a consultancy agreement?

Typical notice periods are 30 days for ongoing relationships, though you can terminate immediately for material breach like confidentiality violations or failure to deliver quality work. Project-based engagements naturally end at project completion, while senior strategic advisors may require longer notice periods of 60-90 days.