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Yonder Consulting was commissioned in September 2020 to conduct research with individuals in the UK in receipt of income which is facilitated by a third-party ‘intermediary’. Fieldwork was carried out between January and August 2021

0.1 Background

The use of third-party intermediaries has long been common in some traditional forms of income generation such as letting agents collecting rent from tenants, however, the rise of technology, automation and connectivity have opened new online opportunities to generate additional income or offer an alternative to the traditional way of working.

These opportunities enable individuals to be connected with customers to exchange skills, services, labour or to share assets via an app or website, with the payment handled between the two by an online intermediary. Those who purchase goods to re-sell online or sell crafts they have made themselves through online marketplaces, which handle the payment between the buyer and seller, also fall under the umbrella of having online intermediation arrangements.

Typically, in traditional forms of employment, employers would be responsible for reporting and paying income tax to HMRC on behalf of an employee under the Pay as You Earn (PAYE) system, deducting any necessary tax such as National Insurance (NI) or benefits, before paying the employee wages. For all other forms of income, the onus is on the individual to report their income tax and NI to HMRC through a Self-Assessment (SA) tax return as a self-employed individual.

However, research published by the Office of Tax Simplification ^{[footnote 1]}, the Taylor Review ^{[footnote 2]} and HMRC’s Call for Evidence in 2018 ^{[footnote 3]}, have highlighted that the SA population using online platforms (particularly those offering services), find the process of SA reporting a burden, complicated and feel there is a lack of clarity on what actions need to be taken. HMRC will use findings from this research to explore the role of intermediaries in improving ITSA customers’ experience of reporting their income and paying their tax liability.

This report uses the term ‘intermediaries’ interchangeably with what HMRC would define more precisely as ‘third parties’. HMRC currently defines an intermediary as any person or entity, UK or offshore, which acts in some capacity between HMRC and its customers, in relation to any other customer liability or entitlement to benefits. Intermediaries differ from third parties in that intermediaries act on behalf of customers in their liaison with HMRC, while third parties act independently as part of tax administration.

0.2 Research Objectives

Yonder Consulting was commissioned in September 2020 to explore these individuals in the UK in receipt of income which is facilitated by a third-party ‘intermediary’. The core objectives of this research were to:

Produce a prevalence rate of individuals in receipt of any taxable, non-PAYE income where the activities and payment are facilitated by an intermediary, and to include the following subgroups of interest (referred to as intermediary groups within this document):

• individuals providing services through online platforms such as platforms like Uber or Deliveroo

• individuals trading through online marketplaces such as eBay, Etsy, or Amazon

• individuals sharing tangible assets using online and offline platforms such as online platforms like Airbnb to rent property or offline platforms such as a high-street letting agent like Foxtons, Reeds Rains or Countrywide

Understand the detailed characteristics and financial profile of individuals generating income in this way for the above groups of interest

0.3 Methodology

A two-phase large-scale quantitative approach was adopted for this research. The first stage was to define the prevalence of those earning money through intermediaries. Prevalence in this case refers to understanding the proportion of individuals in the UK adult population in receipt of any taxable, non-PAYE income where the activities are facilitated by an intermediary. The second stage was to establish a detailed financial profile of these individuals and their characteristics.

Phase 1 methodology overview:

• 10 minute Computer Assisted Telephone Interviewing (CATI) survey of a random sample of 4,138 which was representative of the adult UK population

• fieldwork was carried out between 18th January and 17th March 2021

• respondents were asked to provide information on any earnings made through an intermediary across 2 time periods

• between March 2019 and March 2020 (pre-COVID-19)

• between March 2020 and the time of the survey (March 2021)

Phase 2 methodology overview:

• 20 minute online survey of 1,662 UK adults who generated income through an intermediary *fieldwork was conducted between 7th July and 11th August 2021

0.4 Key Findings

Prevalence rate

A minority (10%) earned non-PAYE income via an intermediary between March 2020 and the time of the survey (March 2021) based on 4,138 nationally representative interviews. This was slightly higher than the pre-COVID-19 prevalence rate (between March 2019 to March 2020) of 8%.

Younger age groups (18 to 24 year olds) were significantly more likely to earn income via intermediaries (17%) than those aged more than 45 years old (10%). The prevalence of earning via intermediaries was also higher for males (12%) than females (8%). Those belonging to Asian minority groups were more likely to be receiving intermediary income (17%) compared to the rest of the UK population.

Individuals belonging to the ABC1 social economic groups (SEG) ^{[footnote 4]} had a higher prevalence of earning via an intermediary (12%) than the C2DE SEG (7%) and the UK overall.

Similarly, individuals in full-time employment of more than thirty hours per week were more likely to be generating income via an intermediary (13%) than those who were not working (6%). Furthermore, those with a university level education (13%) and those with a pre-tax household income of £28,000 and above (14% to 17%) tended to be more likely to be earning money via intermediaries than the general population.

The prevalence of those who traded on online marketplaces was 6%, followed by 3% for those who shared tangible assets, followed by 2% for those individuals’ providing services through online platforms.

Key characteristics

The majority of those earning money in this way did so as an individual, receiving all the income from this activity for themselves. This was especially the case for those who traded through online marketplaces (92%), but less so for those sharing tangible assets, (69%) who were more likely to be a part of a group (27%).

The amount of time between spending money on running costs and receiving income varied between intermediary groups. The gap for those providing services through online platforms tended to be within a fortnight (51%), whereas for those sharing tangible assets the gap was more likely to be between a fortnight and three months (43%).

Just over 6 in 10 of those who traded through online marketplaces did not claim any capital allowances on one-off purchases (61%). Those providing services through online platforms were the group most likely to claim at least some of their capital allowances (78%).

Those sharing tangible assets were most likely to report their income to HMRC (66%), compared to those providing services (49%) or trading online (31%). Of the intermediary groups, those trading through online marketplaces were more likely to say they had not notified HMRC, because they claimed they earned less than the threshold of what needs to be reported to HMRC (51%).

Income levels

It is important to note that income is based on the respondents’ reported estimated average incomes (rather than outturn data) and so should be treated with caution.

Those sharing tangible assets were earning the most, with an average NET income of £8,730 in the previous 12 months, compared to those providing services on online platforms (£3,880) and those trading on online marketplaces (£2,170). However, those sharing tangible assets also had the highest average running costs in the last 12 months (£4,530) and one-off purchases (£2,540) than any other intermediary group.

Although the prevalence of those individuals trading through online marketplaces was higher than any other intermediary group, their NET average income was the lowest. Individuals in this group were more likely to have running costs (64%) than those providing services through online platforms (50%) but were least likely of any intermediary group to claim capital allowances (39%).

There was a high level of variability in the amount of time taken between receiving the income and using it to spend on running costs. Just over half of those providing services through online platforms (51%) tended to spend their income within a fortnight. This was less likely for those trading through online platforms (42%) and for those sharing tangible assets, who were more likely to spend their income between a fortnight and three months (43%).

For those individuals generating income through an intermediary, what other forms of income are they also in receipt of?

A high proportion of individuals earning money in this way were also receiving other forms of income, either as a paid employee, a sole trader or partnership, or as a director of their own limited company. Across the intermediary groups, the highest proportion noted was for those providing services through online platforms (79%), followed by three in four of those trading through online marketplaces (75%) and just over 7 in 10 (71%) of those sharing tangible assets.

On average, those sharing tangible assets received a higher income from pensions, savings, investments, rental income, and other taxable income than the other intermediary groups.

Those trading through online marketplaces were least likely to be receiving income from pensions, savings, investments, rental income, and other taxable income. However, almost six in ten (59%) were working as a paid employee.

Those providing services through online platforms were the more likely to be working as paid employees (62%) and have a second paid job as an employee (22%) than any other intermediary group.

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