Do I need a consultancy agreement for a fractional CTO?
By SuLe · Updated 6 July 2026
Yes — a fractional CTO should always work under a written consultancy agreement, because without one you risk losing ownership of the technology they build and facing tax and status problems. The agreement must expressly assign IP to the company, set fees and scope, and address confidentiality, status and IR35.
Key facts
- A consultant, unlike an employee, keeps ownership of what they create unless the contract assigns it — an express IP assignment clause is essential.
- A fractional CTO is normally engaged as a self-employed consultant, so a consultancy agreement fits better than an employment contract.
- Status turns on reality, not the label — a "consultant" who works like an employee can be reclassified by a tribunal or HMRC.
- IR35 applies where the CTO works through their own company; for small clients the contractor's company assesses it.
- The agreement should cover fees, scope, confidentiality, data protection, notice and restrictions on working for competitors.
Why does a fractional CTO need a written agreement?
Because your most valuable asset — the technology — is being built by someone outside your payroll, and the default legal position does not protect you. A handshake leaves ownership, confidentiality and payment all unclear.
A fractional CTO typically works part-time across several companies as a self-employed consultant. That makes a consultancy agreement the right instrument: it reflects an independent relationship rather than employment, and lets you set commercial terms on fees and deliverables.
Skipping it is a false economy. The moment there is a dispute about who owns the codebase, or whether the CTO is really an employee, the absence of a clear agreement is what costs you.
What must the agreement cover for a startup's core tech?
Five things do the real work. The first and most important is IP assignment: without an express clause, a contractor generally keeps ownership of what they create, so the agreement must assign all IP in the deliverables to the company, with a duty to help register it.
Second, confidentiality over source code, architecture and business information. Third, clear scope, fees and payment terms so there is no argument about what is delivered for what. Fourth, data protection obligations if the CTO handles personal data. Fifth, sensible restrictions and a notice period so you are not left exposed if they leave mid-build.
Get the IP clause wrong and you can end up licensing — rather than owning — the technology your company is built on. Investors will check this in due diligence.
How do status and IR35 affect a fractional CTO?
Both need thought, because a fractional CTO sits close to the line between consultant and employee. Status is decided by the reality of the relationship — personal service, control and mutuality of obligation — not by the word "consultant" in the heading.
If the CTO works fixed full-time-equivalent hours under your close direction, cannot send a substitute, and is fully integrated, a tribunal or HMRC could treat them as an employee, with back-dated tax and employment rights. Keeping the engagement genuinely flexible and outcome-based helps.
On tax, IR35 applies where the CTO operates through their own limited company. If your startup is "small" under the Companies Act thresholds, that company assesses IR35; larger clients must assess and issue a status determination — check the current thresholds, which were uplifted recently.
| Clause | Why it matters for a fractional CTO |
|---|---|
| IP assignment | Without it, the CTO keeps ownership of your core tech |
| Confidentiality | Protects source code, architecture, roadmap |
| Scope and fees | Prevents disputes over deliverables and pay |
| Status / substitution | Supports genuine consultant status, reduces reclassification risk |
| IR35 handling | Allocates the off-payroll tax question correctly |
| Notice and restrictions | Stops you being stranded mid-build |
Worked example
Priya runs a logistics startup and brings in a fractional CTO, Alex, two days a week at £900 a day through Alex's own company. Priya uses a proper consultancy agreement rather than an employment contract.
The agreement assigns all IP in the platform to Priya's company, imposes strict confidentiality over the codebase, sets clear deliverables and fees, and preserves Alex's genuine independence — Alex sets his own methods and works for other clients. Because the startup is small, Alex's company assesses IR35. When Priya later raises a seed round, her investors' due diligence confirms the company cleanly owns its technology, exactly because that assignment clause was in place.
Where founders go wrong
Assuming the contractor's IP is automatically yours
— it is not; without an assignment clause the CTO keeps ownership of what they build.Using an employment contract for a consultant
— it misdescribes the relationship and can create unintended employment rights.Letting the engagement drift into employment
— fixed hours and tight control can trigger reclassification and back-dated tax.Leaving out confidentiality and notice
— you can be exposed mid-build if a departing CTO is not properly restricted.
Related questions
Why can't I just use an employment contract for a fractional CTO?
A fractional CTO is usually engaged as a self-employed consultant, not an employee, so an employment contract sends the wrong signal and can create rights you did not intend. A consultancy agreement fits the relationship and lets you set fees, IP and termination on consultancy terms.
Does a consultant automatically assign their IP to me?
No — and this is the biggest trap. Unlike employees, a contractor generally keeps ownership of what they create unless the contract assigns it to you in writing. For a CTO building your core technology, an express IP assignment clause is essential. [More: Who owns the IP my employees and contractors create?]
Does IR35 apply to a fractional CTO?
It can, where the CTO works through their own company. If your startup is "small" under the Companies Act thresholds, their company assesses IR35; larger clients must assess and issue a status determination. Genuine independence in how the work is done helps keep the engagement outside IR35. [More: Employee vs contractor — what's the legal difference (and where does IR35 fit)?]
Could a fractional CTO still count as an employee?
Yes, if the reality looks like employment — fixed hours, close control, no substitution, full integration. A label of "consultant" won't protect you. Keep the arrangement genuinely independent, or accept and manage the employment and tax consequences.
A fractional CTO builds the asset your whole company is valued on, and a missing IP-assignment clause or a misjudged status call can surface at exactly the wrong moment — your next raise. A SuLe solicitor can draft a consultancy agreement that secures your technology. Book a free consultation about your contracts before work begins.
Keep reading: Employee vs contractor — what's the legal difference (and where does IR35 fit)? · What should an advisor agreement include? · Who owns the IP my employees and contractors create? · Can contractors or advisors receive share options? · What must a UK employment contract include?
Primary sources: GOV.UK — Employment contracts · Acas — advice and codes of practice
