Consultancy agreement: a guide to the contract

The consultancy market in Denmark is growing. More and more specialists choose to work independently, and more and more businesses outsource specialist tasks rather than hire. The result is that consultancy agreements are everyday fare for freelancers, advisers, IT specialists, coaches and a wide range of other self-employed businesspeople.

But a consultancy agreement is not just an employment contract with a different name. It governs a fundamentally different legal relationship, and it only protects you if it is drawn up correctly.

What is a consultancy agreement?

A consultancy agreement is a contract between a self-employed consultant (a natural or legal person) and a client for the delivery of one or more services. The consultant does not work as an employee but as a self-employed businessperson, and that is reflected in the structure of the contract.

A consultancy agreement can for example cover:

• IT advice and software development
• Management consulting and leadership advice
• Marketing services and creative work
• Legal, financial or technical advice
• Coaching, teaching and course services
• Project management and interim management

Consultant vs. employee: a decisive distinction

The most important distinction in any consultancy agreement is: are you really a consultant or really an employee? It is not just a question of the name. It has major consequences for tax, pension obligations, holiday pay and liability.

The Danish Tax Agency makes an overall assessment based on a number of factors:

Points towards self-employment (a consultant):

• The consultant bears the business risk
• The consultant has several clients (not just one)
• The consultant provides their own equipment, office and materials
• The consultant decides their own working hours and method
• The consultant invoices by agreement (not a fixed salary)

Points towards employment:

• The client decides the working hours, place and method
• The consultant receives a fixed monthly payment
• The client provides all equipment
• The consultant has one single client for a long time

If the tax authorities assess that you are in reality an employee, the client can be required to pay withholding tax, labour-market contributions, pension and holiday pay retroactively. That is a significant risk, which a well-prepared consultancy agreement helps to avert by documenting the reality of the independence.

What should a consultancy agreement contain?

1. Identification of the parties

State the consultant's and the client's full legal name (and CVR number for both), address and contact details. The consultant should appear as a business (with a CVR number), not as a private individual, to underline the business independence.

2. The scope and description of the services

Describe precisely what the consultant delivers:

• Which tasks, projects or service categories?
• To what extent (hours, projects, results)?
• Within what time frame?

The more precisely this is described, the easier it is to establish whether the consultant has delivered as agreed.

3. Fee and payment terms

State the fee model:

• Hourly rate: a fee per working hour with the hourly rate stated
• Fixed price: a fixed fee for a defined task
• Retainer: a fixed monthly fee for ongoing advice and availability
• Milestone payment: payment on reaching specific sub-goals

State the payment terms: the invoicing time, the payment deadline and interest on late payment.

4. Equipment, place of work and working hours

Describe who provides the equipment, and whether the consultant works at the client's premises, from home or elsewhere. Avoid wording that suggests the client decides the working hours, as it can weaken the independent character.

5. Confidentiality

Consultants typically gain access to the client's trade secrets, customer information and internal strategies. A robust confidentiality clause is essential:

• What information is regarded as confidential?
• For what period does the confidentiality obligation apply (typically a couple of years after the agreement ends)?
• What are the consequences of a breach?

Consider a separate confidentiality agreement if this is particularly critical.

6. Intellectual property

Who owns the material the consultant creates as part of the task?

The starting point in Danish copyright law is that the author, that is the consultant, owns the rights to what is created. For software, however, there is a special rule: under section 59 of the Copyright Act, the copyright to a computer program created in an employment relationship passes to the employer. This rule does not apply to consultants, who are not employees.

You must therefore expressly agree in the consultancy agreement whether the rights transfer to the client on delivery (and at what price), whether the client gets a licence to use the deliverable, and whether the consultant keeps the right to use the same methods and generic elements in other tasks.

Many disputes about consultancy relationships arise precisely because the IP rights are not agreed.

7. Limitation of liability

Consultants should always consider a limitation-of-liability clause that limits the maximum liability, typically to the size of the fee for a period or a fixed amount.

Typical elements:

• The exclusion of indirect loss and consequential damage (subject to gross negligence and intent)
• A maximum liability (for example "the maximum liability is limited to the fee invoiced during the agreement period")
• The client's duty to mitigate its loss

If you have professional indemnity insurance (adviser insurance), you can state the insurer and the cover amount.

8. Duration and termination

State the term of the agreement and the termination terms:

• Is the agreement limited to a project?
• Is it ongoing with a notice period?
• When can it be cancelled with immediate effect (material breach, non-payment)?

9. Sub-suppliers and substitution

Can the consultant have someone else carry out parts of the task? For the client it can be important to have control over this. State whether the consultant needs prior consent to use sub-suppliers.

10. Competition restrictions

Should the consultant be restricted from working for the client's competitors during and after the task? Note that such clauses for the self-employed are not covered by the Employment Clauses Act (which applies to employees) but are instead assessed under the general rules of contract law, including section 38 of the Contracts Act. They must be reasonable and limited to be enforceable.

VAT and tax in consultancy relationships

As a self-employed consultant with a VAT-liable turnover above DKK 50,000 within a 12-month period, you must register for VAT and charge 25% VAT. If the client is VAT-registered, the client can deduct the VAT as input VAT.

The consultant is responsible for settling tax, VAT and any pension contributions. That is a significant difference from employment, where the employer withholds tax.

What is a Statement of Work (SOW)?

Many consultancy agreements are split into two layers:

• A framework agreement that sets the general terms (fee, confidentiality, IP, liability)
• One or more Statements of Work (SOW) that describe the specific task and deliverables

The SOW model is flexible: the framework agreement is rarely renegotiated, while the specific SOW documents are updated for each new task. It saves time and ensures consistency.

Frequently asked questions about consultancy agreements

Is a consultancy agreement the same as a freelance contract?

In reality yes; both govern a self-employed business relationship. "Freelancer" is typically used for creative and IT suppliers, while "consultant" is used for advisers and specialists. Legally there is no real difference.

Should the consultancy agreement be signed digitally or physically?

Both are valid. A digital signature, for example via MitID or another recognised e-signature solution, is fully legally binding in Denmark and is in practice far faster than paper.

Can the client terminate the agreement if they are dissatisfied with the consultant's work?

It depends on the terms of the agreement. If the agreement contains a notice period, that generally applies, but on a material breach (for example repeated errors in the deliverable) cancellation with immediate effect can come into play.

What happens if the project runs beyond the agreed deadline?

It should be agreed in advance: is the consultant obliged to complete the project regardless of time spent, or is extra work compensated at the agreed hourly rates? A fixed-price agreement without a clear definition of the task is a classic source of conflict.

Should I take out professional indemnity insurance as a consultant?

It is not required by law but strongly recommended for consultants who advise on critical business decisions. Many large clients require it as a condition of entering an agreement.

Conclusion

A consultancy agreement is your most important legal protection as a self-employed person. It documents the reality of the independence, sets the IP rights, limits liability and clarifies the payment terms. Use a professional template and adapt it to your specific task and industry.

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The content of this article is for guidance only and does not constitute legal advice. Consult a commercial lawyer or accountant for advice on your specific situation.