Research and analysis

VAT De-registration Qualitative Research 2023

Published 26 September 2024

1. Glossary

Term	Definition
Agent	An agent is someone businesses authorise to communicate with HMRC on their behalf regarding their tax affairs. Agents can provide businesses with guidance and support on their tax obligations.
Central assessment	HMRC have the power to issue assessments to VAT registered businesses where those businesses have failed to submit a VAT return. The central assessment (also known as a prime or auto assessment) is an estimate of the VAT liability due to HMRC on the outstanding VAT return. The estimates may be based on the business’s previous return liabilities, taxable turnover (which can be calculated manually based on information a HMRC officer has) or other information HMRC holds about the business.
Consumer	A person who buys goods and services for his or her personal use.
Government Gateway	This is a system used to register for the UK government’s online services.
Nil VAT return	A nil VAT return is a form that must be submitted to HMRC if a business has no VAT to declare for an accounting period.
Reclaiming VAT	A VAT registered business can reclaim the VAT incurred on goods and services bought for use in the business. The VAT is reclaimed in a VAT return.
Turnover	Turnover is the total sales made by a business in a certain period. For the purposes of VAT registration, taxable turnover is the value of total sales which are not exempt from VAT.
VAT registration	The process of registering for VAT. A business is required to register for VAT if its taxable turnover exceeds the VAT threshold. Known as voluntary registration, a business can choose to register for VAT if its turnover is less than the VAT registration threshold.
VAT de-registration	The process of cancelling a person’s VAT registration. A business must de-register for VAT if it has stopped making taxable supplies, joined a VAT group or in certain circumstances where the business has been transferred as a going concern or changed legal entity. Businesses can request their VAT registration is cancelled if their VAT taxable turnover falls below, or is expected to fall below, the VAT de-registration threshold. The VAT threshold was £85,000 in September 2023 at the time that this research was conducted.
VAT return	A form VAT registered businesses are required to submit to tell HMRC how much VAT they have charged and paid to other businesses. Most businesses need to send a VAT return to HMRC every 3 months (quarterly). A VAT registered business must submit a VAT return even if it has not paid or reclaimed VAT (nil VAT return).
VAT threshold	The amount of taxable turnover which determines when a business is required to register for VAT. The VAT threshold was £85,000 in September 2023 at the time that this research was conducted.
VAT	Value Added Tax. This is a tax added to most products and services sold by VAT registered businesses. There are 3 types of VAT rates for goods and services. The first is the standard rate which is set at 20%, which is applied to most goods and services. The second is the reduced rate which is set at 5%, which is applied to some goods and services such as children’s car seats and home energy. The third is the zero rate which is set at 0%. This applies to zero-rated goods and services such as most food and children’s clothes.

2. Executive Summary

2.1  Research approach and objectives

HM Revenue and Customs (HMRC) commissioned Ipsos, an independent research agency, to conduct qualitative research to better understand HMRC customers’ experience, awareness, and understanding of the Value Added Tax (VAT) de-registration process. The research also examined the barriers as well as motivations which prevent de-registration and the effectiveness of the current de-registration model.

Ipsos conducted a total of 60 in-depth semi-structured interviews. This was across 2 phases, with UK businesses. Interviews took place between 25 May and 25 September 2023 and were carried out either by telephone or Microsoft Teams. A typical interview lasted up to 60 minutes.

Phase one interviews included businesses who were either eligible for de-registration or who had already been through the de-registration process. Agents were also interviewed to provide an informed view of experiences surrounding VAT de-registration for both themselves and their clients. Phase 2 interviews were with businesses who had received a central assessment in the previous 12 months according to HMRC data.

2.2  Main findings

Knowledge and perceptions of VAT de-registration

The research found that the VAT de-registration process itself was simple and straightforward for both businesses and agents. Businesses that voluntarily de-registered from VAT felt that this had been a financially sensible decision offering several advantages.

These businesses had typically de-registered as a result of either external advice and support; or due to a better understanding of accounting and financial matters. Access to reliable and clear information as well as understanding the advantages of de-registration were factors that enabled these businesses to de-register from VAT.

However, a lack of understanding and knowledge were the most common barriers to de-registration. More broadly, a lack of understanding and knowledge led businesses to:

• be unaware they could de-register their business
• have concerns should their business exceed the VAT threshold in the future
• have concerns over the process of re-registering for VAT

Overall, businesses’ level of understanding of VAT de-registration varied significantly. Some shared that they felt it would be less problematic to remain registered rather than to engage with the unknown.

Several businesses did however share specific rationales as to why they remain registered. These included: 

• legal and regulatory obligations that required their business to have a VAT registration number
• sector-specific disadvantages resulting from the lack of a VAT registration number
• interaction with agents and other third-party support services

Most of the interviewed businesses said that they had access to an experienced third party or agent. Agents were seen as pivotal in helping businesses understand the options available to them. Agents were also a major source of information informing businesses about eligibility to de-register as well as about the de-registration process. Some businesses said that agents were not always accessible to them due to the cost involved.   Agents felt that businesses would typically de-register if they were struggling financially or nearing the end of their operations.  

Information and support from HMRC on VAT de-registration

Businesses were asked about their experience when interacting with HMRC. Feedback was mixed depending on the type of interaction they had. HMRC’s online guidance was praised by businesses as straight forward, informative, and accessible. However, feedback from businesses contacting HMRC by phone was more negative.

When asked how HMRC could help better support businesses to de-register, some said that they thought HMRC should be more communicative and pro-active. Several businesses noted that they were simply unaware that they could de-register.

Perception and reception of central assessments

The effectiveness of central assessments varied depending on the recipient. For some businesses, particularly those that were knowledgeable about the VAT system, central assessments were seen as being effective in motivating them into filing their returns.

Central assessments were less well understood by businesses that were not as familiar with VAT or who were struggling with the VAT process. These businesses tended to have a more negative response to HMRC communications in general and central assessments were seen as imposing and less effective.

Among the businesses who had received central assessments, 4 types of businesses were identified:

• confident aware
• confident unaware
• strategically disengaged
• unconfident overwhelmed

Improvement to the VAT de-registration process including HMRC support and guidance

Feedback on HMRC VAT de-registration guidance and the online de-registration service was generally positive. However, other HMRC communications received some criticism.

Interactions with HMRC online services concerning VAT de-registration were largely viewed in a positive light. However, businesses indicated various areas where the provision of HMRC support before, during and after the de-registration process could be improved.

This generally involved improvements in communication timeliness, accessibility, and clarity, including:

• more proactive communication from HMRC around VAT de-registration
• more accessible and responsive HMRC support
• more information post completion of the de-registration process

Participants were presented with video tutorials, a list of pros and cons and a decision tree as suggestions for additional support that could be provided to those going through the VAT de-registration process. These suggestions for additional support were generally well received by agents and businesses.

3. Background and approach

3.1 Background

HM Revenue and Customs (HMRC) commissioned Ipsos to undertake qualitative research with businesses who are eligible for VAT de-registration and agents that work with VAT registered businesses.

Some businesses are failing to de-register from VAT at the right time. This impacts the accuracy of HMRC systems, specifically the health of the VAT register.

When a business fails to submit a VAT return, a central assessment is automatically issued to prompt the customer back into compliance.

Customers remain in the VAT system and central assessments continue to be issued until the customer submits the missing return, de-registers or HMRC compulsorily de-registers them from VAT (subject to eligibility).

Where intervention is necessary, there is a resource impact for HMRC.

The overall aim of this research was to understand businesses and agents’ perceptions and experiences of VAT de-registration. This could help HMRC to better understand the appropriate help and support businesses need to facilitate VAT de-registration.

3.2 Research aims and objectives

The specific objectives of this research were to understand:

• characteristics of businesses who fail or are likely to fail to de-register from VAT when they should
• awareness and knowledge of the VAT de-registration process
• experiences of VAT de-registration
• reasons why businesses fail to de-register from VAT when they should
• role of agents and third-party services
• businesses’ perceptions of HMRC support to de-register

3.3 Methodology

A qualitative approach was used to explore businesses and agents’ perceptions and experiences of VAT de-registration in detail. Ipsos received a sample of businesses and agents taken from HMRC data. Recruitment was guided by a screening questionnaire which was used to determine eligibility for the research.  

Ipsos conducted 60 qualitative interviews with businesses and agents between 25 May and 25 September 2023. Interviews were carried out by telephone or Microsoft Teams and lasted up to 60 minutes. Participants received an incentive from Ipsos for their valuable contribution to this important research. The research included:

• businesses that submit nil returns (3 interviews)
• trading and non-trading businesses that appropriately de-registered from VAT in the 12 months prior to interview (16 interviews)
• VAT- registered businesses under the VAT threshold that continue to trade and sell to consumers (10 interviews)
• businesses that failed to submit at least one VAT return in the previous 12 months (16 interviews)
• agents (15 interviews)

A spread of interviews was achieved in terms of trade status, business size, business age, location, and turnover. Further information can be found in the Technical Annex.

3.4 Interpretation of qualitative data

By its nature, qualitative research is not designed to be statistically representative. This report is intended to be illustrative of the range of views held by businesses and agents, providing insight into their perceptions, experiences, and decision-making in relation to VAT de-registration.

The findings presented in this report reflect only the perspectives of those interviewed and cannot be generalised to a wider sample of registered and unregistered businesses.

Verbatim quotes have been included in this report to illustrate key points and common themes. Where verbatim quotes are used, they have been anonymised.

4. Awareness and knowledge of VAT de-registration

4.1 Businesses awareness and knowledgeability about VAT de-registration

Businesses’ understanding of the eligibility criteria and the process for VAT de-registration varied significantly. Typically, businesses that had more knowledge and awareness had conducted online research or had spoken to an accountant about de-registering. Businesses were often aware of some elements of de-registration, but not others.

Some were aware of the VAT threshold, and that a business would have to de-register if it ceased to trade. They had often learned this from discussion with an agent, from their own research, or had simply assumed that this would be the case.

Businesses were sometimes unaware of the precise eligibility criteria for de-registration. They had not always sought proactively to find out more about de-registration, which led them to speculate about what this criterion would be. These businesses tended to express worries about what the process of de-registration might involve. 

Agents, and particularly accountants, were seen as the most useful sources of information about de-registration, although HMRC pages on gov.uk and online guidance were also perceived positively. Some also consulted accountancy websites or forums and found these useful.

Not all businesses were able to find the information they needed about de-registration without help. In particular, they struggled to find information on:

• specific eligibility in their own particular case
• when to de-register, if they were close to the VAT threshold
• what the process of de-registration would entail, and how long this would take
• what the next steps after de-registration would be

4.2 Agents’ awareness and knowledgeability about VAT de-registration

In comparison to businesses, agents were much more aware and knowledgeable about VAT de-registration, and about the main eligibility requirements around turnover and ceasing to trade. Through regular interactions with HMRC they had become familiar with requirements, kept themselves up to date, and had frequent experience of the de-registration process.

Even those who said that they were not particularly familiar or experienced with the de-registration processes remarked that they felt that the process of de-registration was easy. They also said that it had never been a challenge in their experience.

Where agents were less familiar with de-registration, they felt they would be likely to find this easy and would use the HMRC online guidance to quickly re-familiarise themselves.

The process was seen by some agents to be easy enough that they would advise their clients to take it on themselves, rather than to have an agent do it on their behalf.

“I’ve got a couple of clients where I do their VAT for them but, in the main, I try to encourage clients to do it themselves. It’s more effective than to get an accountant to do it. Why ask me to do it when they know the answers themselves?” (Agent, Micro business)

5. Reasons for de-registering and not de-registering from VAT

5.1  Reasons for de-registering

Businesses that had de-registered were typically those that were struggling financially, nearing the end of their operations, or selling directly to the public. Businesses typically de-registered when they became conscious of the changed circumstances of their business. This was usually because of their own research, or a prompt from their agent. These circumstances might include:

• a sustained drop in turnover, with little prospect of going back above the VAT threshold
• liquidation, closing or sale of the business, perhaps due to retirement
• repeated submission of nil returns for several quarters
• revisiting the advantages and disadvantages around staying registered or de-registering (including profit margins, revenue, the likelihood of needing to claim VAT back, client perception and the time and cost of filing quarterly returns)

Among participants who were looking to exit, wind down, or sell their business, de-registering from VAT was seen as a natural part of the process. These businesses were not expecting to exceed the VAT threshold or make new sales. For these businesses, remaining VAT registered represented an unwanted administrative burden that provided no advantages. This also applied to business owners planning to retire.

There were also strategic reasons why some businesses chose to de-register for VAT. For some, de-registration was part of a drive to improve competitiveness. Some businesses de-registered to be able to offer more cost-effective pricing to clients that do not reclaim VAT, by undercutting competitors who still charge VAT. This could be particularly beneficial for sole traders and very small businesses that dealt directly with customers.

Others de-registered when they anticipated dropping below the VAT threshold for an extended period. Some businesses had dropped below the threshold when they were winding down, or when they were experiencing or anticipating a sudden drop in turnover. External factors such as COVID-19 or EU Exit were another reason why some businesses dropped below the threshold. This applied particularly to micro businesses who faced unpredictability around future work.

“I kept a template of my turnover over every month for 12 months. I saw a steady drop off after this COVID catch up bit. I was coming down to figure to between 55 and 65 turnover, which ultimately meant that I could de-register my business from VAT.” (De-registered, Micro business)

Finally, some businesses were motivated to de-register because of a drive to cut costs related to VAT returns. When VAT registration was not a requirement to secure funding or future work, and businesses were not looking to reclaim costs and expenses, the advantages of de-registration could outweigh those of staying registered.

By de-registering, businesses no longer needed to invest in their VAT setup, helping save on expenses as well as reducing their administrative burden. As such, struggling businesses eligible to de-register saw de-registration as a potential pathway to increased financial stability.

“I was doing all of this work to the do the VAT returns that we are not making any money from, it’s not worth it, can we de-register which is why I Googled can you de-register from VAT.” (De-registered, Sole trader)

Once they had considered the possibility of de-registration, business decision-makers tended to de-register within 3 months to a year.

5.2 Barriers to VAT de-registration

Barriers that prevented eligible businesses from proceeding to de-register included:

• lack of awareness that they could de-register for VAT and also continue trading
• a lack of reliable information about the process, their eligibility, and the possible consequences and advantages
• hope that the business’s turnover would return to a previous level and exceed the threshold
• fear of making an error when de-registering, based on previous negative experiences of interactions with HMRC
• a belief that staying registered was easier, amid general concerns about a potentially complicated process

Several participants shared that they were unaware that they could de-register and continue trading. There were also concerns amongst these businesses about failing to meet their VAT obligations and facing penalties from HMRC.

“What I had not realised, was that I could continue to trade even though I’d de-registered for VAT. If I had known that, I would have done it earlier. I thought once I’d registered for VAT, that was it. My business had to go on as registered for VAT forever unless I changed the business and started a different business.” (De-registered, Sole trader)

Businesses who were concerned about this risk reported that they were worried that they would accidentally make a mistake in their de-registration and face a penalty. Businesses with minimal knowledge of the de-registration process were also more likely to assume that the process was complicated and not want to engage with it.

“I just want to do it right. My only concern about doing anything in relation with the law and legal obligations is that I am I doing it correctly…. I don’t want to make an error.” (Not de-registered, Sole trader)

Businesses that were hopeful that their turnover would improve, or that their drop in turnover was temporary, were particularly keen to remain registered while they assessed the markets. Some felt that it was easier to remain registered than to de-register and later re-register.

Other businesses were content to remain registered as they had experienced difficulties in their initial registration that they did not wish to repeat. These businesses were hopeful that their business would soon regain a level of turnover that would require them to be registered for VAT.

There were also commercial reasons why some businesses chose to stay registered despite being eligible for de-registration.

Some businesses reported that their clients had specific policies or expectations that required them to work only with VAT-registered businesses, or that their industry sector required them to be registered. Some in the early stages of the formation of their business expected to reach a turnover more than the VAT threshold rapidly.

In some cases, businesses had become reliant on their ability to reclaim VAT on business expenses.

Maintaining VAT registration was also thought to serve as a public sign of a business’s credibility. It could give the impression that a business was larger than it really was. It could also help maintain its status with both external and internal stakeholders, particularly during periods of reduced turnover.

“I would worry if it would be complicated and also if I couldn’t re-register on the Flat Rate Scheme. I wouldn’t know how complicated the process would be and the subsequent VAT issues.” (Not de-registered, Sole trader)

5.3 Agent perspective on advantages and disadvantages of de-registering from VAT

Agents pointed out that, in some cases, de-registering from VAT was obligatory. In cases where it was not, they largely shared the perspective of businesses on the advantages and disadvantages of de-registration.  

They suggested that businesses sometimes opted to remain registered to protect:

• reputation, agents suggested that being VAT registered conveyed a sense that the business had been around for some time alongside providing an impression that they could be relied upon to continue to operate in the future
• credibility, being VAT registered helped convey the sense that the business was of a substantive size with a large turnover, and therefore was credible
• ability to reclaim VAT, many businesses, even if they had a turnover below the threshold, operated in an industry or had clients where being VAT registered would help with costs

“It’s not even about winning contracts, it’s about not losing opportunities. So, it’s a subtle difference, but being VAT registered doesn’t help me win a contract because everybody’s VAT registered, but not being VAT registered might mean you lose a contract.” (Central assessment One, Not de-registered, Sole trader)

They also observed that businesses that typically de-registered were often those struggling financially or nearing the end of their operations. In those cases, de-registering could be either a natural next step in winding down the business, or a potential remedial step to rescue it. De-registration would help reduce the costs for businesses to remain VAT registered as well as reducing businesses’ administrative workload. Agents reported that in these circumstances, they would sometimes advise a struggling business to de-register.

6. Experience of VAT de-registration

6.1 Businesses’ experience of VAT de-registration

Businesses typically de-registered via the online de-registration service. They chose to do it this way because of convenience and speed, and the perceived reliability of the process. The experience of businesses when de-registering was largely positive. They described it as easy, straightforward, simple, and quick.

In general, businesses did not encounter problems or obstacles when completing the process. It was simple enough that many businesses felt at ease de-registering themselves, despite having an accountant.

“The overall process was simple and straightforward. It was simple. I just remember it being a pretty quick process… There wasn’t anything complicated or anything I had to think about to do. It was exactly the way it should have been.” (De-registered, Sole trader)

“I received a letter confirming VAT de-registration. Clear instructions were provided on how to do my final VAT return. It then gave me the due date. And they told me to keep the records for 6 years. I have all the information I required.” (De-registered, Micro business)

There were some businesses who reported small areas of challenge or confusion with the de-registration process:

• preparing documentation in advance
• providing details of the last return amount and due date for filing that return
• receiving confirmation of the completion of de-registration and tracking progress of the process
• time period between de-registration and the business closing down

6.2 Agents’ experience of VAT de-registration

Agents’ experiences of VAT de-registration largely mirrored those of their clients.

Agents typically de-registered via the online de-registration service. They reported that the process was straightforward and mostly positive, with few setbacks.

Agents observed that the de-registration process was quick once the business had supplied answers to the questions being asked. The forms that businesses were required to fill in were not seen as onerous by agents. The information that HMRC required on these forms had not changed over time and would be readily available.

“To be fair to HMRC, it’s one of their things that’s pretty quick. 99% of the time, once you have answers to the questions they are asking, filing the form out online is a few minutes and HMRC get back to you in a few days. So, it’s not actually one of the worse things HMRC have on their roster of things so it’s not too bad.” (Agent, Small)

Some agents shared challenges that they had encountered that were not due to the de-registration process, but to their status as a third-party acting on behalf of their clients, notably:

• a mismatch between the client and agent HMRC interface
• a belief that HMRC communication channels unduly prioritised the client, rather than the agent

While some businesses had held a degree of reservation and scepticism before de-registration, agents said that de-registration had provoked far fewer complaints from their clients than some other HMRC processes. In some cases, having been through the process, agents reported that their clients wondered why they had not de-registered sooner. They said they felt there might be a lack of understanding among businesses of what the potential advantages of de-registration might be.

Agents had some other minor concerns about the de-registration experience:

• some businesses had reacted badly to having to repay VAT on their assets and stock
• some agents said that businesses found it hard to provide an accurate valuation of these assets and stock
• the request for a final VAT return after de-registration could be confusing for some businesses
• some agents wanted to be able to save a local copy of the answers submitted on the de-registration form for their records and were unable to do so

7. Businesses receiving central assessments

7.1 Types of businesses that receive central assessments

Among the businesses who had received central assessments, 4 types of businesses were identified:

• confident aware, these businesses were aware that they had received central assessments, were familiar with the tax system and knew why and how to resolve their issues
• confident unaware, these businesses claimed that they were familiar with central assessments and the tax system but demonstrated a lack of awareness and understanding
• strategically disengaged, these businesses were aware of receiving central assessments, and of VAT de-registration, but felt that their outstanding issues were not important and did not require urgent action
• unconfident overwhelmed, these businesses did not have a good understanding of central assessments or of the tax system and felt overwhelmed as a result

Businesses discussed several reasons why they had received central assessments, including both one-off circumstances and more recurrent issues.

Among the 4 business types, the most likely businesses to receive continued central assessments were the ‘Unconfident Overwhelmed’ businesses as well as the ‘Strategically Disengaged’ businesses. These 2 types of businesses had systematic issues that were likely to encourage further receipt of central assessments. ‘Strategically Disengaged’ businesses did not prioritise their VAT returns, instead opting to focus on the development of their business.

‘Strategically Disengaged’ businesses were also found to be constrained both financially, unable to afford external help, as well as in terms of resource capacity. As such, these businesses felt that they had to choose between filing their VAT or the continued operation of their business. Between these options, businesses shared that their VAT return was a lower priority.

‘Unconfident Overwhelmed’ businesses were similarly likely to re-receive a central assessment. Businesses that fell into this category were unfamiliar with VAT and felt overwhelmed by their lack of familiarity with tax and the tax system. For them, engaging in the tax system was a daunting challenge, even with external help.

‘Confident Aware’ businesses had a good understanding of VAT and had typically failed to file their VAT-returns due to one-off circumstances that varied among respondents. Therefore, as these respondents were able to navigate the tax system well, they were less likely to receive a central assessment again in future.

“The cost of the accountant to do that would be prohibitive at my level of trade so, yes. I did look into it but for the price of the accountant to do that I could have an administrator in-house doing other things as well as the VAT returns so it’s not worth it.” (Central assessment One, Not de-registered, Micro business)

7.2 Attitudes and perceptions towards central assessments

Reactions and attitudes towards central assessments varied across participants. In the second phase of the research, businesses who had received central assessments were interviewed to better understand their attitudes and reception of central assessments.

While some businesses found central assessments to be useful reminders to submit their return, others saw them as cause of additional work. Across the 4 business types who had received central assessments, effectiveness varied depending on their grouping.

‘Confident Aware’ businesses responded positively to central assessments. These businesses along with ‘Strategically Disengaged’ businesses found central assessments to be least concerning and most helpful. These businesses were comfortable with VAT and generally aware that they were either due a central assessment or likely to receive one. Amongst these businesses, central assessments were sufficient encouragement to motivate them to submit a return. As these businesses did not have major issues with either navigating or understanding the VAT system, central assessments were more effective in prompting action for them compared to businesses that lacked that understanding or experience.

However, among these businesses central assessments were ineffective as a tool to encourage de-registration. Businesses within this category were generally aware that they could de-register but had opted not to do so. As a result, central assessments had very little impact on either informing or shifting their position on de-registration.

Unlike the ‘Confident Aware’ businesses, less confident and knowledgeable businesses responded negatively to central assessments. ‘Unconfident Overwhelmed’ businesses were characterised by feeling both overwhelmed by the tax system and their lack of knowledge regarding the VAT system. For these businesses, central assessments were generally less well understood. These notices from HMRC were seen as scary and added an additional layer of worry for businesses already feeling overwhelmed. Central assessments were not effective in encouraging these businesses to file missed VAT returns as many were simply ignored. Some businesses shared that they had been ignoring all communications from HMRC as they prompted a fearful response.

A number of businesses whom HMRC record having sent a central assessment said that they had not received a central assessment. Despite prompting, these businesses could not recall ever receiving a central assessment or equivalent communication from HMRC. These businesses were reluctant to engage with HMRC and shared that they did not reach out to HMRC unless necessary and that communication was kept to a minimal basis.

8. Interaction with agents and other third-party support services

8.1 Business interaction with agents and other third-party support services

In most cases, the agents and third-party support services that businesses used for VAT de- registration were accountants and tax advisors. In specific circumstances, lawyers could also be involved, while specialist accounting websites were also occasionally mentioned as a source of support.

“They [clients] give me a call. The majority of mine [clients] are unlikely to attempt to do it themselves they just bat it to me.” (Agent, Micro business)

“Some of them [clients] do not open brown envelopes from HMRC, because it’s scary or a threat for them. But mostly they do open the envelopes, take the pictures [and just send it to us to let us deal with the issue].” (Agent, Micro business)

Agents were seen as particularly important for those who were less financially literate or familiar with accountancy principles, as well as those who were less digitally enabled. Agents reported that they tended to play a more substantial role in supporting smaller businesses.

Agents were generally seen by businesses as a source of stability and certainty. Businesses commonly saw agents as credible, and to a certain degree reliable. Agents themselves echoed this sentiment, with some remarking that businesses used agents to offload their responsibilities associated with interacting with HMRC around VAT and tax more generally.

Agents thought that businesses felt that by having an agent, they would be free from needing to think about these responsibilities themselves.

Agents mentioned that they would often facilitate dialogue between businesses and HMRC. Businesses worried about saying or doing the wrong thing in these interactions, or not understanding the situation they were in.

Agents were not always seen as a readily accessible source of support. The high costs of using them meant that some participants considered agents to be out of reach.

8.2 Agent interaction with clients and businesses on VAT de-registration

Agents and third parties played a different role before and during de-registration.

“When they [clients] ask about deregistration, they just ask, is it done? And now it’s, okay? And they [HMRC] won’t come after me?”(Agent, Micro business)

Before de-registration, their role was chiefly advisory. They helped businesses in their decision-making. This included prompting them about the need to de-register as well as helping choose the moment when they felt it was most appropriate.

Agents would guide businesses on the advantages and disadvantages of de-registration. They would also guide businesses when they received unexpected communications from HMRC, helping them to identify next steps.

During de-registration, accountants tended to be used in an administrative and reassurance role. They would assist businesses with their tax return, tax administration and with de-registering on their behalf, if they were asked to do so.

During de-registration accountants provided guidance on the process and its different steps, referring businesses as needed to the HMRC guidance and the need to register for the Government Gateway. They would confirm information for businesses who came to them with a query or help generate information to help businesses complete the de-registration.

9. Experiences of interacting and communicating with HMRC

9.1 Business experience interacting and communicating with HMRC

Businesses were asked to provide feedback on the interactions and communications they had with HMRC around the de-registration process, and the information and support it provided. Interactions with HMRC online guidance as well as the Government Gateway were generally positive. It was only when businesses attempted to either call or email HMRC where communication was reported as problematic.

“I use the website, it’s incredibly useful and it is also one of the best websites that I’ve ever seen in business because HMRC don’t want to wish to make a mistake. The information is usually laid out in a manner that is understandable.” (Not de-registered, Sole trader)

Direct interaction with HMRC was limited. Views about HMRC online guidance on de-registration were mixed. Some were positive about this, but others felt that the language used was unclear technical language that they struggled to understand.

Feedback on using Government Gateway for de-registering was generally positive. Businesses described it as simple and straightforward to use.

Businesses appreciated receiving confirmation from HMRC that their request for de-registration had been submitted and received. It provided them with assurance that they had successfully completed this part of the process. However, some felt there was a lack of clarity on next steps and timelines after de-registering.

Those that had interacted with HMRC during the de-registration process typically did so because they had questions about the process or wanted confirmation of de-registration status. These businesses tended to have more critical feedback. They felt HMRC was difficult to reach by email and telephone and was not always able to provide useful and timely responses.

9.2 Agents’ experience interacting and communicating with HMRC

Agents were not generally familiar with HMRC documentation on VAT de-registration, and also reported that they had very little experience of dealing with HMRC directly about de-registration. They tended to feel that de-registration was a quick and straightforward process that worked relatively well in most cases, and usually did not require direct follow-up from them, or support from HMRC.

“We don’t communicate a lot with HMRC on VAT de-registration to be honest. The only time I communicated with them was this online issue and the system was down, and I phoned them and checked the online help desk to see [what is happening]. Other than that, there’s no need for us to deal with HMRC if we can follow a process.” (Agent, Small business)

“Once there’s anything slightly out of the ordinary, you’re dealing with a bot. […] so I say, if at all possible, do it online so that you know it has been received. The post right now is so unreliable. […] The other thing I say is: Get a printout of everything you have online because there is no disputing in the future what they said.” (Agent, Micro business)

10. Suggested improvements to the VAT de-registration process including HMRC support and guidance

10.1 Spontaneous suggestions for improvements before, during and after VAT de-registration 

Despite a generally positive assessment of their interactions with HMRC on VAT de-registration, businesses suggested several areas where the support provided by HMRC could be improved before, during and after the process.

This included improvements in communication timeliness, accessibility, and clarity, including:

• more proactive communication from HMRC around VAT de-registration
• more accessible and responsive HMRC support for businesses eligible to de-register from VAT
• more information following completion of the de-registration process (such as when and how to re-register)

10.2 Feedback on prompted suggestions (video tutorials, pros and cons and decision tree)

Participants were presented with three stimulus materials drafted by Ipsos to better understand how businesses going through or looking to de-register could be better supported. All 3 options were well-received, although there were cautions in businesses’ response to each.

The concept of video tutorials was viewed as a good option for many, as they would always be available. They were seen as a being more accessible for those with the least knowledge or expertise and a way of providing support that suited those with different learning styles. This was on the basis that video tutorials were short in length, and purely factual, rather than narrative driven.

However, some worried that the information contained in video tutorials might become out of date. There was also some concern that it might be difficult to tailor the videos so that they were suitable for the needs of all the different types of businesses that would need to access them. Some also pointed out that HMRC would need to ensure that they met accessibility standards.

The idea of a document outlining the pros and cons of de-registration, if eligible, was well-received and tied in well with what several participants said they needed to help make the decision.

Pros and cons were seen as a potentially beneficial starting point, and helpful for those considering de-registration. This was particularly if pros and cons were placed within HMRC information and guidance.

Businesses felt pros and cons needed to be concise, but also to reflect the nuances of businesses in different circumstances as there was some concern, they might be too general. It was suggested that pros and cons could be shared by email to help businesses consider whether de-registration was right for them.

“The danger to putting that kind of information out there, is that every business is different. And people potentially will misunderstand.” (Agent, Small business)

A decision tree was also viewed as helpful for those considering de-registration. A decision tree was seen as a potentially more transparent and insightful way of delivering guidance to businesses. However, participants cautioned that a decision tree needed to be kept up to date, and that it would need to include the post de-registration process to be comprehensive.

Some wanted a decision tree to include the functionality to select and amend responses, as well as appropriate cautions suggesting that businesses seek professional advice. Some also worried that a decision tree might lead some eligible businesses to de-register, even if it was not beneficial to them to do so.

11. Technical Annex

A qualitative approach was used to explore businesses and agents’ perceptions and experiences of VAT de-registration in detail. Ipsos received a sample of businesses and agents from HMRC.

The sample for this research came from the following sources:

• HMRC VAT Administration data
• HMRC Individuals, Small Businesses and Agents survey re-contact data

Recruitment was guided by a screening questionnaire which was used to determine eligibility for the research. Ipsos conducted 60 qualitative interviews with businesses and agents between 25 May and 25 September 2023. Interviews were carried out by telephone or Microsoft Teams and lasted up to 60 minutes. Participants received an incentive from Ipsos for their valuable contribution to this important research.

This research was split into 2 phases. Phase one of this research included interviews with:

• businesses that submit nil returns (3 interviews)
• trading and non-trading businesses that appropriately de-registered from VAT in the 12 months prior to interview (16 interviews)
• VAT-registered businesses under the threshold that continue to trade and sell to consumers (10 interviews)
• agents (15 interviews)

Phase 2 of this research included interviews with:

• businesses that had failed to submit at least one VAT return in the previous 12 months (16 interviews)

A spread of interviews was achieved in terms of trade status, business size, business age, location, and turnover.

Table one: Quota for businesses

Quotas for businesses	Categories	Phase one interviews	Phase 2 Interviews
Currently trading	Yes	19	11
	No	25	5
Length of time business has traded	Less than 2 years	2	1
	2 to 5 years	5	5
	More than 5 years	14	5
	Ceased trading	0	5
Location	England	24	15
	Scotland	3	1
	Wales	5	0
Size	Sole trader	12	7
	Micro (1 to 9 employees)	16	7
	Small (10 to 49 employees)	0	1
	Medium (More than 50 employees)	1	1
Turnover	Below £85,000	27	11
	Above £85,000	2	5

Table 2: Quota for agents interviewed in phase one

Quotas for agents	Categories	Interviews
Currently trading	Yes	15
Location of clients	England	10
	England, Scotland and non United Kingdom	1
	England and Wales	3
	Northern Ireland	1
Size	Sole trader	4
	Micro (1 to 9 employees)	6
	Small (10 to 49 employees)	5