Consultant Solicitor Structures: How They Work and How Each Is Taxed

What Is a Consultant Solicitor Structure?

A consultant solicitor structure is an arrangement where a qualified solicitor works for a law firm on a self-employed basis rather than as an employee or equity partner. The consultant typically handles their own caseload, bills clients through the firm, and receives a share of the fees they generate. The firm provides office space, administrative support, regulatory cover, and professional indemnity insurance.

The phrase covers four distinct operating models, and the difference between them is mostly a tax and contracting difference rather than a regulatory one. A consultant can work as a self-employed sole trader, through their own limited company (a personal service company or PSC), through a third-party umbrella company, or on a fee share basis (which is itself usually delivered through one of the first two). Each model is taxed differently, and IR35 (the off-payroll working rules) reaches some of them and not others. The rest of this guide takes each in turn.

This model has grown significantly in UK law firms over the past decade. It offers flexibility for experienced solicitors who want to control their workload and earnings without taking on the full responsibilities of partnership. For firms, it provides access to skilled fee-earners without the fixed cost of a salary or the long-term commitment of an equity stake.

However, the structure raises important tax, legal, and regulatory questions. HMRC, the SRA, and employment tribunals each look at these arrangements from different angles. Getting the structure wrong can lead to unexpected tax bills, off-payroll liabilities, or regulatory action.

Common Consultant Solicitor Models

Fee Share Consultant

The most common model is the fee share consultant. The solicitor agrees a percentage split with the firm, typically between 60% and 80% of collected fees going to the consultant. The firm retains the remainder to cover overheads, PII, and profit. The consultant invoices the firm monthly or quarterly for their share, usually through their own limited company or as a sole trader.

For example, a consultant solicitor billing £150,000 per year on a 70/30 split would receive £105,000. If operating through a limited company, the consultant can control when and how they extract that income, potentially saving on National Insurance and higher-rate tax.

Umbrella Consultant

Some firms use an umbrella consultant arrangement. Here, the consultant works through an umbrella company that handles payroll, tax, and NI. The umbrella company invoices the law firm for the consultant's time, deducts employment costs, and pays the consultant a salary. This model is more common for locum solicitor placements where the engagement is short-term or project-based.

The umbrella route simplifies compliance for the firm but can be less tax-efficient for the consultant. The umbrella company must operate PAYE, meaning the consultant pays employee and employer NI on the full amount. There is limited scope for dividend extraction or expense claims.

Limited Company Consultant (Personal Service Company)

Many experienced consultant solicitors set up their own limited company, often called a personal service company or PSC. The company enters into a contract with the law firm to provide the solicitor's services. The company invoices the firm, receives the fee share, and the solicitor draws income as a combination of salary and dividends.

Where the engagement sits outside IR35, this structure can be tax-efficient. The consultant can pay themselves a modest salary and take further income as dividends, deferring extraction to control the timing of personal tax. The company can also deduct genuine business expenses such as professional subscriptions, CPD costs, and equipment. The advantage is narrower than it once was: employer (secondary Class 1) National Insurance is 15% on salary above the £5,000 secondary threshold from 6 April 2025, and the dividend rates rise from 6 April 2026 (see the tax section below), so the PSC route should be modelled on current rates rather than assumed to win.

The PSC model also carries the highest off-payroll risk. If the engagement is inside IR35 and the engaging firm is medium or large, the firm (as fee-payer) must operate PAYE and NIC on the fees before paying the company, under the off-payroll working rules (Chapter 10, Part 2, ITEPA 2003). If the firm is small, the consultant's own company decides its status under the original IR35 rules (Chapter 8). The IR35 section below sets out who determines status.

IR35 and the Consultant Solicitor

IR35 is the single biggest tax risk for consultant solicitor arrangements that run through an intermediary (typically a limited company or, in some cases, an umbrella). Who applies the rules depends on the size of the engaging firm.

From 6 April 2021, where the engaging firm is medium or large under the Companies Act 2006 size test (broadly, meeting two of: turnover over £10.2m, balance sheet over £5.1m, more than 50 employees), the firm, not the consultant's company, determines status and must issue a Status Determination Statement (SDS). If the consultant is found to be inside IR35, the fee-payer deducts PAYE and NIC from the fees before paying the intermediary, and the firm also pays the employer NIC and the Apprenticeship Levy where applicable. Where the engaging firm is small, the rules differ: the consultant's own company decides its status under the original IR35 (Chapter 8, Part 2, ITEPA 2003), and the firm pays the company gross. A sole-trader consultant is outside IR35 altogether, because the rules apply only to intermediaries, though the firm must still satisfy itself that the engagement is genuine self-employment.

HMRC looks at three key factors when assessing IR35 status:

• Control. Does the firm dictate when, where, and how the consultant works? A genuine consultant solicitor should have significant control over their working hours, case management, and methods.
• Substitution. Can the consultant send a replacement if they are unavailable? Most law firm contracts prohibit this, which weakens the self-employed argument.
• Mutuality of obligation. Is the firm obliged to offer work, and is the consultant obliged to accept it? A true consultant arrangement should lack ongoing mutuality beyond the specific engagement.

If the consultant works exclusively for one firm, uses firm equipment, follows firm procedures, and cannot send a substitute, HMRC is likely to argue IR35 applies. The firm should conduct a status determination for each engagement and provide a Status Determination Statement (SDS) to the consultant.

We cover this in more detail in our guide for locum solicitors and in our post on the IR35 rules for locum solicitors, which set out practical steps for managing off-payroll compliance.

SRA Regulatory Considerations

The SRA does not prohibit consultant solicitor structures, but it imposes strict requirements. The firm remains responsible for the consultant's compliance with the SRA Accounts Rules, the Code of Conduct, and the Money Laundering Regulations.

Key regulatory points for consultant solicitors:

• Client money. The consultant cannot hold client money in their own account. All client money must be held in the firm's client account, managed by the firm's COFA.
• Conflict of interest. The consultant must disclose any conflicts that arise from their other clients or business interests. The firm's conflicts-checking procedures must cover the consultant's work.
• PII cover. The consultant must be covered by the firm's professional indemnity insurance. Most PII policies automatically cover fee-earners working under the firm's supervision, but the firm should confirm this with their insurer.
• COLP and COFA. The firm's COLP and COFA must have oversight of the consultant's work. The consultant is not a separate regulated entity; they operate under the firm's SRA authorisation.

If the consultant holds themselves out as a partner or director, or if they have significant management responsibilities, the SRA may treat them as a manager of the firm. This triggers additional regulatory obligations, including the need to be an SRA-approved manager.

Tax Treatment of Consultant Solicitor Income

For the Consultant

The tax treatment depends on the legal structure chosen:

• Sole trader. The consultant reports fee share income on their self-assessment tax return. They pay income tax at their marginal rate and Class 4 NIC at 6% on profits between £12,570 and £50,270, then 2% above (2025/26). Class 2 NIC is no longer a payable weekly charge: liability was removed from 6 April 2024, so a self-employed consultant with profits at or above the Small Profits Threshold is treated as having paid and keeps their state-pension entitlement without paying it. They can claim allowable expenses such as professional subscriptions, CPD, travel, and a proportion of home costs.
• Limited company (PSC). The company pays corporation tax at 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief between those thresholds. The consultant draws a salary (subject to PAYE and NIC) and dividends. For 2025/26 dividends are taxed at 8.75% (basic-rate band), 33.75% (higher-rate band) and 39.35% (additional-rate band), with a £500 dividend allowance. From 6 April 2026 (Finance Act 2026, section 4) the ordinary rate rises to 10.75% and the upper rate to 35.75%; the additional rate stays at 39.35% and the allowance remains £500. This route only delivers a saving where the engagement is outside IR35.
• Umbrella company. The consultant receives a salary subject to PAYE, employee NIC, and employer NIC. No dividend extraction is possible. This is the least tax-efficient option for high earners, but it removes the IR35 question because the umbrella operates full PAYE.

The gap between the PSC route and an umbrella or inside-IR35 arrangement depends on dividend timing, salary level, and personal circumstances, and it has narrowed with the 15% employer NIC threshold from 6 April 2025 and the dividend increase from 6 April 2026. It should be modelled on current rates for the specific consultant rather than assumed.

For the Firm

The firm's tax treatment also varies by structure:

• Fee share to a limited company. The firm pays the company gross, without deducting PAYE or NI, provided the engagement is outside IR35. The payment is deductible as a business expense against the firm's profits.
• Fee share to a sole trader. The firm pays the consultant gross. The consultant invoices the firm and accounts for tax through self-assessment. The firm deducts the fee as a business expense.
• Umbrella or inside IR35. The firm must operate PAYE on the full fee, deduct employee NI, and pay employer NI at 15% on earnings above £5,000 per year. The firm also pays the Apprenticeship Levy if total pay bills exceed £3 million.

The firm should obtain a written contract that clearly sets out the consultant's status, fee share percentage, payment terms, and termination provisions. The contract should also confirm that the consultant is not an employee and has no entitlement to holiday pay, sick pay, or pension contributions.

Consultant Fee Share vs Equity Partner

Many solicitors compare the consultant fee share model against becoming an equity partner. The key differences are significant:

• Capital contribution. Equity partners typically contribute capital to the firm, often £50,000 to £200,000. Consultants contribute nothing.
• Profit share. Equity partners share in the firm's overall profits, not just their own billings. Consultants only earn from their own fee generation.
• Risk. Equity partners bear the firm's losses, including bad debts, PII claims, and overheads. Consultants have no liability beyond their own work.
• Tax. Equity partners are taxed on their share of the firm's profits under self-assessment. Consultants are taxed on their fee share, which is often lower than the partner's profit share for equivalent billing levels.
• Voting and control. Equity partners have voting rights on firm decisions. Consultants have no say in firm management.

For a solicitor billing £200,000 per year, a consultant fee share of 70% (£140,000) may leave them better off after tax than an equity partner earning a £150,000 profit share but contributing capital and bearing risk. However, the equity partner builds capital value in the firm and may benefit from a practice sale. Our partnership take-home calculator can help you model the numbers for your situation.

Practical Steps for Setting Up a Consultant Solicitor Structure

If you are a law firm considering engaging a consultant solicitor, or a solicitor exploring this route, follow these steps:

1. Define the engagement. Be clear about the scope of work, fee share percentage, and duration. Avoid clauses that suggest employment, such as fixed hours, holiday entitlement, or sick pay.
2. Conduct an IR35 status determination. Use HMRC's Check Employment Status for Tax (CEST) tool or take professional advice. Document the determination and provide an SDS to the consultant.
3. Draft a robust contract. The contract should state that the consultant is self-employed, has no substitution clause restrictions, and controls their own working methods. Include a termination clause that allows either party to end the arrangement without notice.
4. Review SRA compliance. Ensure the consultant is covered by your PII, that client money is handled through your firm's client account, and that the COLP and COFA have oversight.
5. Set up invoicing and payment. Agree how the consultant will invoice the firm and when payment will be made. Monthly invoicing is standard. The firm should pay the consultant within 30 days of receipt of the invoice.
6. Monitor the arrangement. Review the relationship regularly. If the consultant starts working exclusively for the firm, using firm equipment and following firm procedures, the IR35 status may change. Update the determination if needed.

Common Pitfalls to Avoid

Consultant solicitor structures fail most often for these reasons:

• Ignoring IR35. Firms that treat all consultants as outside IR35 without proper assessment risk HMRC penalties. The liability for unpaid tax falls on the fee-paying party (the firm) under the off-payroll rules.
• Treating the consultant as an employee in practice. If the consultant works set hours, uses firm equipment, attends firm meetings, and cannot refuse work, HMRC and employment tribunals will reclassify them as an employee. This triggers claims for unpaid holiday pay, sick pay, and pension contributions.
• Failing to register with the SRA. If the consultant holds themselves out as a partner or manager, they must be an SRA-approved manager. Failure to register is a regulatory breach.
• Poor documentation. Verbal agreements or vague contracts leave both parties exposed. Always put the arrangement in writing with clear terms.

When to Use a Consultant Solicitor Structure

The consultant solicitor model works well for:

• Experienced solicitors who want to reduce their hours or work part-time without losing their fee-earning capability.
• Locum solicitors covering maternity leave, sabbaticals, or busy periods. The flexibility suits short-term engagements.
• Solicitors nearing retirement who want to wind down gradually without the commitments of partnership.
• Specialist solicitors who bring a niche practice area to a firm without the firm needing to hire a full-time employee.
• Firms testing a new practice area before committing to a permanent hire or partnership.

The model is less suitable for junior solicitors or trainees, who typically need the structure and supervision of employment. It is also unsuitable for solicitors who want to build long-term capital value in a firm, as the consultant does not share in the firm's growth or sale proceeds.

Final Thoughts

The consultant solicitor structure offers genuine flexibility for both firms and fee-earners, but it requires careful planning. The tax, regulatory, and legal risks are real, and they vary depending on the specific facts of each arrangement. A structure that works for one solicitor may fail for another if the working practices differ.

If you are considering this route, take advice from a legal-sector-specialist accountant who understands both the tax rules and the SRA requirements. The cost of getting it wrong, whether through an HMRC enquiry or an SRA investigation, far outweighs the time spent setting the arrangement up properly.

For more detailed guidance, see our guidance for partners and consultants and our solicitor accountants service page. We also offer a free firm health check that includes a review of your consultant arrangements.