Research and analysis

Research exploring VAT repayment methods

Published 15 May 2025

Mixed methods research exploring business decision-making around VAT repayment methods.

HM Revenue and Customs (HMRC) Research Report 789.

Research conducted by Yonder Consulting between August and December 2023. Prepared by Yonder Consulting (Simon Taylor, Anna Horsley-Hann, Joe Cavell, Josh Bunt and Macarena Curtze) for HMRC.

Disclaimer: The views in this report are the authors’ own and do not necessarily reflect those of HMRC.

1. Glossary of terms and abbreviations

Throughout this report, several terms and abbreviations are used, which include:

• Payable order (PO) - payable orders are cheques sent via post

• Bankers’ automated clearing system (BACS) - a BACS transaction is an electronic money transfer between banks

• VAT repayments - usually, if you’ve charged your customers less VAT than you’ve paid on your purchases, HMRC repay you the difference

2.  Executive summary

2.1 Background to this research

Currently, VAT repayments are paid either directly into businesses’ bank accounts (BACS) or by payable order (PO) / cheque. The majority of payments are made directly into business bank accounts. At the time of the research, one in five VAT repayments are still being made by payable order. Therefore, HMRC commissioned research to understand why this method is used and how best to encourage more businesses to consider BACS as a method of VAT repayment. To explore this topic, a blend of qualitative and quantitative research was conducted between August and December 2023, with individuals and small businesses who had recently received VAT repayments by payable order.

2.2 Barriers to switching to BACS for VAT repayments

Based on this research, businesses who had recently received VAT repayments by payable order displayed low awareness of BACS as an alternative repayment option. However, businesses that were aware of this payment option had been deterred from switching to BACS by believing that the process of doing so would be too time-consuming. Other businesses lacked awareness of how to switch to BACS for VAT repayments. Additionally, the businesses who took part in this research believed the benefits of switching (for instance, speed, security, and convenience of BACS) would be insignificant in the context of their wider business challenges.

Certain businesses expressed that they actively prefer receiving payable orders for their VAT repayments. This was often out of emotional attachment to them. Some felt greater autonomy in choosing which bank account payable orders can be deposited into. Others feared falling victim to scams associated with more online or electronic methods of payment.

2.3 Review of hypothetical communications aimed at accelerating the switch to BACS for VAT repayment

We qualitatively tested 3 hypothetical approaches (see method section 3.3) aimed at encouraging businesses to switch to BACS for VAT repayments. While all approaches involved sending a physical letter to accompany their VAT repayment payable order, each approach adopted a different method (a gentle push, opt-in or opt-out) to encourage the switch from payable order to BACS.

This research found that physical letters, as opposed to electronic communications, are read with increased attention. All 3 approaches were considered effective in informing those previously unaware of the option to receive VAT repayment via BACS. This suggests that use of any of the tested approaches would likely result in conversion of some businesses who were previously unaware that they could receive their VAT repayments by BACS.

However, this research also suggests that, among businesses who are already aware of the possibility to receive VAT repayments via BACS, stating the benefits of switching (for instance, speed, security, and convenience) would be insufficient to encourage switching. This is due to these businesses already knowing these benefits, but lacking sufficient motivation to switch.

For the businesses who participated in this research, their likelihood to switch appeared to depend on the level of input required on their behalf. For example, the requirement to navigate the GOV.UK website outweighed assurances of a speedy process that were suggested by HMRC pre-loading business bank details or including a QR code. Examples of navigation included inputting their government gateway ID and password. As a result, participants valued the opt-out approach as it removed all effort required by businesses.

However, further refinements to the hypothetical opt-out approach were suggested by participants to improve accessibility to less digitally confident audiences. In particular, this meant providing non-digital, or more familiar methods of opting out (such as phonelines, Post Office boxes, email addresses).

The businesses who took part in this research also wanted greater detail explaining the rationale of this switch, such as HMRC looking to modernise and improve the service it offers to businesses, rather than presenting it solely as a move that benefits businesses.

3. Introduction

3.1 Background

As part of HMRC’s wider payment transformation strategy, HMRC want to motivate customers who receive VAT repayments via payable orders to switch to BACS. At the time of the research, one in five VAT repayments are still made by payable order. Therefore, HMRC wanted to understand why this method is used and how best to motivate the remaining customers who receive VAT repayments via payable order to switch to being paid directly into their bank account via BACS instead.

HMRC commissioned independent research agency Yonder to conduct a piece of research between August and December 2023, with individuals and small businesses who had recently received VAT repayments by payable order.

3.2 Research aims

The research was conducted to understand barriers to switching from payable order to BACS VAT repayments and explore solutions to encourage more businesses to move to BACS VAT repayments. Research questions included:

• what are businesses’ perceptions and experiences of HMRC which may influence business receptiveness and acceptance of VAT repayments changes?

• why do businesses not receive VAT repayments by BACS?

• what awareness do businesses have of BACS as a method of VAT repayment?

• what is their understanding of the benefits and drawbacks of payable order versus BACS?

• what does HMRC need to do to encourage businesses to consider BACS as a method of VAT repayment?

• what is the best way to engage with businesses on switching to BACS payments?

3.3 Method

3.3.1 Fieldwork

This research included 2 qualitative phases, a quantitative phase, and a co-creation workshop with HMRC to develop potential ideas to encourage conversion to BACS as a method of VAT repayment.

The first stage of exploratory qualitative research involved 10 x 45-minute depth interviews with small businesses who were receiving VAT repayments by payable order and had sole responsibility for managing their VAT returns. The purpose of this stage was to gain understanding of their bookkeeping to inform the design of the quantitative survey. This included attitudes towards VAT repayment processes, the strengths and weaknesses of payable order, and barriers to switching. Fieldwork for this stage took place from 7 August 2023 to 18 August 2023.

The second phase of research was a quantitative survey conducted among small businesses who were currently receiving VAT repayments via payable order. The survey included a combination of online and computer assisted telephone interviews. Fieldwork took place from 24 August 2023 to 29 September 2023 and 526 survey responses were collected in total.

A workshop with Yonder and HMRC was conducted to discuss the initial insights from the first 2 stages. An additional aim of the workshop was to generate ideas that HMRC could consider, to encourage more businesses to make the switch to BACS as a method of VAT repayments.

The final stage of this research study was a qualitative phase with 20 x 45-minute additional depth interviews with small business owners who were using payable order to receive their VAT repayments and had sole responsibility for managing their VAT returns. The aim of this phase was to test hypothetical approaches aimed at educating and motivating customers to switch to BACS for VAT repayments.

While all 3 hypothetical approaches tested involved sending a physical letter to accompany their VAT repayment payable order, each approach adopted a different method to encourage the switch from payable order to BACS for VAT repayments. These approaches were as follows:

Approach 1: Gentle push towards BACS

Letter notifies businesses of option to switch to BACS. Those wanting to do so are required to scan a QR code then enter bank details they want VAT repayment paid into.

Approach 2: Opt-in approach

Letter notifies businesses of option to switch to BACS. Businesses’ bank details are preloaded, and they are required to confirm these bank details, or supply alternative details, and opt-in to having future repayments processed electronically via scanning a QR code.

Approach 3: Opt-out approach

Letter notifies businesses that future VAT repayments will automatically be paid directly into the bank account from which HMRC receives their VAT payments. Businesses are required to scan the QR code to opt-out of this approach, or supply alternative bank details.

Each hypothetical letter also included a weblink for those unfamiliar with using a QR code. Fieldwork for this qualitative phase took place from 27 November 2023 to 22 December 2023.

3.3.2 Sampling

The sample used for all phases of the research programme was provided by HMRC. The sample was derived from the database of businesses who had received a VAT repayment via payable order between February 2022 and January 2023.

The sample was designed to include a mix of business sizes (number of employees and turnover), sector, annual total (£) and frequency of VAT repayments, and time since becoming VAT-registered.

Fifteen per cent of the quantitative research sample used an agent to manage their VAT return processes. All other participants (across methodologies) were solely responsible for preparing VAT returns and managing repayments for their business. The qualitative sample therefore excluded businesses using financial agents to manage their VAT repayments.

3.3.3 Report interpretation

This report summarises insights learned across all phases of the research thematically, rather than in chronological order.

These findings reflect the views and experiences of the research sample only. The information provided has not been verified through other means.

4. Context to VAT Repayments

4.1 Perceptions of HMRC influence business likelihood to switch to BACS VAT repayments

Businesses’ experiences adapting to digitalisation could influence their acceptance towards future changes relating to how they receive VAT repayments. From 2019, HMRC introduced Making Tax Digital  for all VAT-registered businesses (or their agents) whose turnover was above the VAT threshold. From 2022, all VAT-registered businesses had to adopt Making Tax Digital VAT rules. Making Tax Digital VAT requires businesses to keep digital records and submit VAT returns using Making Tax Digital compatible software. Businesses who took part in this research recalled that when Making Tax Digital was introduced, they experienced initial scepticism and frustrations but have since acknowledged that Making Tax Digital has improved bookkeeping processes.

Of those who took part in this research, lesser digitally confident businesses expressed frustration at the notion of increased digitalisation of processes related to tax, but accepted there was little they could do if HMRC bring these changes into effect. However, participants who had benefitted from the switch to Making Tax Digital were positively receptive to further digitalisation.

4.2 HMRC brand perceptions

It is important to know how businesses feel about HMRC as an organisation to understand how receptive they will be to HMRC communications about the proposed switch to BACS VAT repayments.

This research finds that businesses had mixed to unfavourable views of HMRC. While negative perceptions of HMRC could impact switching, future communication should avoid perpetuating these perceptions to ensure greater likelihood to act.

There were three types of pre-existing perceptions and experiences of interacting with HMRC among participants in this research, which are expected to be true of processes around switching method of VAT repayment, which are now set out.

Participants perceived the GOV.UK website as difficult to navigate and found the requirement to enter their government gateway ID frustrating.

Participants reported finding it difficult to contact HMRC by telephone. They were fearful of making mistakes and wanted the option to telephone HMRC to discuss any tax matters.

Participants perceived HMRC to be ‘old-school’ and slow to adopt new technology. This ‘old school’ perception was perpetuated by HMRC using payable orders.

Such experiences are strong practical barriers that have resulted in two issues:

• participants reporting that they would be unlikely to use the HMRC website as a source of discovering BACS as a method of receiving VAT repayments without prompting

• participants having strong pre-existing perceptions around the effort and time commitment necessary for processes involving HMRC

In addition, there were emotional perceptions of HMRC that could influence a business’ likelihood to carry out actions requested from HMRC. This was particularly true if actions were not considered to clearly benefit businesses or a legal requirement.

This research found that businesses felt there was an imbalance of power between HMRC and their business due to the perception that interactions with HMRC were a legal requirement and they did not have a choice whether to engage with them. For businesses who participated in this research, HMRC communications exacerbated such perceptions through the use of overly formal language, including referring to them as customers.

This research found that businesses could be worried about making mistakes regarding their tax affairs and wanted to limit interactions with HMRC beyond what is strictly required of them.

Among small businesses who participated in this research, there was a perception that HMRC does not account for challenges that are specific to smaller businesses. Examples from participants included smaller businesses being time poor and often untrained in accountancy or lacking in the right accountancy support compared to larger businesses.

5. Profile and experiences of VAT repayments

5.1 Experiences of VAT repayments

The businesses who took part in this research often regarded VAT repayments as a lower priority within the broader context of challenges they are required to deal with. In line with this, 83% of businesses received 5 or fewer repayments in the past 12 months, and 61% received 3 or fewer repayments^{[footnote 1]}.

As they are often smaller sums of money, VAT repayments were viewed as a nice ‘perk’ by participants, but unsubstantial to customers or their business. As repayment amounts were considered a small amount, there was less concern about the security of the payment. For instance, there was recognition that post can be unreliable, and payable orders may get lost, but the amount is not enough to cause heightened concern.

Businesses who received between £1,001 and £5,000 were less likely to know how to switch to BACS. Not knowing how to switch was ranked the biggest challenge to switching to BACS^{[footnote 2]}. Concern for potential electronic payment scams through BACS was lower for those who received £1,000 or less on average VAT repayments (27%), compared to those who received £1,001 or more.

The research also showed repayment amounts were directly related to the size of the business. For example, smaller businesses deprioritised security and speed of their repayment, if it reflected a relatively insignificant amount of money. A participant in the in-depth interviews was quoted saying:

“Because it’s not a huge amount of money, I kind of see my VAT repayments as a small treat for myself, and spend it on me.” (Micro-business (2 to 10 employees), manufacturing, less than £200,000 annual turnover)

 5.2 Awareness of BACS as a repayment method

 This research found that 53% of businesses (who had received a payable order) were unaware of BACS as a method of VAT repayment^{[footnote 3]}. Lack of awareness was therefore a key reason why businesses had not previously used BACS. However, knowing how to switch to BACS (36%  selected this as a barrier) was also a key challenge^{[footnote 2]}. Figure 1 shows the awareness of BACS as a VAT repayment method by average value of VAT repayment. Those businesses who received a smaller repayment were significantly less aware of BACS.

Figure 1: Awareness of BACS as a VAT repayment method by average value of VAT repayment

	Average value of VAT repayment
£1 - £500	39%
£501 - £1,000	50%
£1,001 - £5,000	53%
Over £5,000	57%

Figure 1: Q13.Which of the following methods of VAT repayment from HMRC are you aware of? Base: All respondents (526). Average value of VAT repayment £1 to £500 (214), £501 to £1,000 (72), £1,001 to £5,000 (133), Over £5,000 (74).

5.3 Experiences of payable order

Sixty-eight per cent of participants agreed that payable orders felt familiar^{[footnote 4]}. However, there was recognition that payable orders are outdated as a payment method. For example, with fewer bank branches being open, travelling to cash the payable orders was seen as a significant hassle, leading to payable orders going unbanked. However, digital applications that scan payable orders and bypass the need to physically visit banks to deposit them decreased significance of this barrier among participants.

Businesses who took part in this research had an emotional attachment to payable orders. They were often labelled as nostalgic or something old fashioned that businesses liked to use occasionally. 50% of participants felt payable orders gave a sense of autonomy and control^{[footnote 5]}. For example, with payable orders, there was a choice over which bank account the payment is made into.

Payable orders were seen as trustworthy by participants, as 68% agreed that it was a trusted method of receiving a payment^{[footnote 5]}. 54% felt payable orders supported them in keeping paper records. A participant in the in-depth interviews was quoted saying:

“It’s just nice these days to get something in the post that isn’t a bill. It’s like when you open a birthday card and there’s cash inside.” (Self-employed, financial industry, less than £100,000 annual turnover)

Despite the emotional attachment towards payable orders, there was disparity between VAT repayment needs and the benefits of receiving them as payable order, as highlighted in Table 1. Speed and accuracy of funds being deposited, ease of payment process, and choice of method to receive payment were more important to participants but were under-performing in meeting needs.

Table 1: Most important business needs when receiving VAT repayments versus extent payable order (PO) meets customer needs

Business need	Ranking of most important need	Top 2 Box % rating on extent PO meets customer needs among those using PO using a 5-point scale
Having the funds deposited into my account quickly	1st	54%
Accuracy of the payment	2nd	85%
An easy payment process	Joint 3rd	61%
Having a choice in the method of receiving payment	Joint 3rd	48%
Being able to deposit into a chosen bank account	5th	64%
Security and privacy of the payment method	6th	63%
Ability to trace the payment digitally	7th	49%
Trust in the method of receiving payment	8th	68%
Ability to keep paper records of the payment	9th	54%
For the payment process to be cost-effective for HMRC	10th	37%
Familiarity with the payment method	11th	68%
Staying in control of the payment process	12th	50%
Able to decide when to deposit the payment into the account	13th	45%
Minimising the environmental impact associated	14th	32%

Table 1: Question 16. Please rate how well the payable order method meets the following needs for your business when receiving VAT repayments. Base: All respondents (526).

However, as Table 2 shows, BACS was more consistent and more likely to meet the most important needs of businesses. Notably, the top 3 needs were speed and accuracy of funds being deposited, ease of payment process, and choice of method to receive payment.

Table 2: Most important business needs when receiving VAT repayment versus extent BACS meets customer needs

Business need	Ranking of most important need	Top 2 Box % rating on extent BACS meets customer need among those using BACS using a 5-point scale
Having the funds deposited into my account quickly	1st	84%
Accuracy of the payment	2nd	89%
An easy payment process	Joint 3rd	91%
Having a choice in the method of receiving payment	Joint 3rd	66%
Being able to deposit into a chosen bank account	5th	68%
Security and privacy of the payment method	6th	82%
Ability to trace the payment digitally	7th	77%
Trust in the method of receiving payment	8th	88%
Ability to keep paper records of the payment	9th	50%
For the payment process to be cost-effective for HMRC	10th	70%
Familiarity with the payment method	11th	82%
Staying in control of the payment process	12th	65%
Able to decide when to deposit the payment into the account	13th	46%
Minimising the environmental impact associated	14th	71%

Table 2: Question 17. Please rate how well the direct electronic payment method (BACS) meets the following needs for your business when receiving VAT repayments. Base: All respondents ever used BACS (105).

 5.4 Barriers to switching to BACS

For 52% of the businesses who took part in this research, the main barrier to switching to BACS was that they didn’t know how to switch^{[footnote 2]}.

Thirty-two per cent felt concerned about potential financial security and phishing scams impacting assurances around how safe their financial information would be^{[footnote 2]}. Other privacy concerns businesses had included being under greater tax scrutiny and monitoring by HMRC if processed through more digital means.

There was also a strong perception among participants that going through the process of changing from payable order to BACS would be lengthy, time consuming, and difficult. For instance, 25% thought switching would be a hassle^{[footnote 2]}. This perception was based on previous experiences dealing with HMRC, which included long waiting times and complex processes.

6. Understanding how to maximise communications to inform and encourage businesses to switch to BACS for VAT repayment

The third phase of this research study looked to qualitatively understand the optimal communication methods to inform and encourage businesses to switch to a BACS VAT repayment system.

Yonder worked with HMRC to develop 3 potential letter-based approaches. The hypothetical letters were created by HMRC and designed to address some of the key barriers to switching to BACS, which were identified through the preliminary qualitative and quantitative insights. These approaches were tested to gauge reaction and perceived likelihood to act.

Approach 1 aimed to raise awareness of BACS to businesses. This approach involved a letter to the business, which would be delivered alongside their VAT repayment payable order. This letter informed the business of the availability of BACS as a VAT repayment method, and outlined how to set up the BACS repayment option in 3 simple steps:

• scan a QR code
• set up their bank details via the link form the QR code
• after completing their bank details, request to have the attached payable order and all future payable orders paid by BACS

Approach 2 was an opt-in process. This approach involved a letter to the business, which would be delivered alongside their VAT repayment. This letter explained how to set up a BACS repayment option and referenced that their business bank details have already been pre-entered. The businesses would need to confirm the bank details are correct or provide alternative bank account details. The next step would be to request the attached payable order and all future VAT repayments to be paid by BACS.

Approach 3 was an opt-out process. This approach involved a letter to the business, explaining that all VAT repayments have been set up for BACS and all future VAT repayments will be paid directly into their business accounts. If they would like more information, there is a link to find out more or to opt-out.

6.1 The most appealing approach to drive switching to BACS VAT repayments

The participating businesses that were already aware of the benefits of BACS expressed a desire to switch, but emphasised that they still wanted the process to be as easy as possible, with minimal effort required on their behalf to make the change. Based on the 3 approaches tested, businesses felt the opt-out approach was the easiest and most straightforward approach to encourage businesses to switch. Participants noted that the opt-out option limited the work required from businesses to move to BACS VAT repayments. The opt-out method addresses the barriers to switching of not having enough time or remembering to switch, as this approach does it for them automatically.

While this method overcomes a key barrier to switching (namely, the effort of doing so), businesses in this research felt HMRC needed to be sensitive to the preferences of the remaining businesses that preferred receiving payable order. Participants assumed that those who still preferred to receive payable orders likely lacked confidence using digital technology and these individuals were assumed to be from older generations. As a result, participants felt a public body must make special considerations for these individuals. For the opt-out method to be considered more appropriate for all individuals, it was suggested that the letters need to provide a way to make it easier to opt-out from BACS VAT repayments, most importantly via non-digital means.

6.2 The optimal channel to use to drive the switch to BACS VAT repayments

The research looked to understand the best channel to approach BACS VAT repayments discussions. Businesses within the qualitative sample recognised receiving a physical letter at the same time as their VAT repayment would help ensure their attention. These businesses believed communications sent from HMRC in a physical form (rather than email) were of heightened importance, so receive greater attention. However, inputting information (such as following a link) from a physical letter to a digital device was considered overly bothersome for some participants, reducing their likelihood to act.

Businesses who took part in this research highlighted that there was also a risk with using physical letters, despite them being more likely to receive greater attention. For example, these businesses suggested they would potentially just cash the payable order before reading the content, therefore not engaging with the physical letter or guidance on how to switch to BACS.

Participants suggested that touchpoints where businesses were already engaged with tax affairs could be an additional avenue used to encourage businesses to make the switch to BACS VAT repayments. This could include when businesses are already logged into the government gateway and involved with managing other tax processes such as capital gains tax. For example, one participant switched to BACS method of VAT repayment after noticing a relevant link whilst filing their corporation tax. Participants also suggested to partner with digital bookkeeping companies to promote awareness of BACS as a method of VAT repayment.

Participants acknowledged that the opt-in and opt-out hypothetical approaches, where bank details are pre-loaded, demonstrated that HMRC is trying to make the process easier for businesses. Businesses in this research did not query how HMRC have their bank details as it was assumed that HMRC holds this information from VAT payments. With pre-existing perceptions that the process of switching will be unnecessarily lengthy, participants suggested it would be beneficial to detail how long the process of switching should take, e.g. by stating the average amount of time it takes. Five minutes was considered an acceptable amount of time by businesses in this research

One of the reasons businesses who took part in this research perceived the switching process to be lengthy was the need to enter their government gateway ID and password. Whilst it was suggested that the inclusion of a QR code would positively influence businesses’ likelihood to act, the businesses in this research assumed the QR code would bypass the need to enter their businesses’ government gateway ID information. If scanning the QR code did not bypass the government gateway ID stage, the appeal of this feature diminished significantly for participants, reducing their likelihood to act.

Another factor in encouraging businesses to switch is ensuring all communications clarify why the switch to BACS VAT repayments is being promoted. Businesses who took part in this research were looking for transparency in relation to the reasons behind why the switch is beneficial to HMRC. It was widely assumed by participants that the switch was a cost-saving exercise that benefits HMRC. This was widely accepted as a justifiable reason for switching, but businesses who took part in this research suggested saying this explicitly. Equally, participants noted that, if it is because HMRC want to modernise their services, then this is also deemed an acceptable reason for the switch.

Businesses who took part in this research suggested motivation to switch could be improved if HMRC had the intention to use any cost-savings incurred by businesses switching to be reinvested to improve the service HMRC offers (for instance, through a better website experience or customer support).

6.3 How to appeal to those businesses who are aware of BACS VAT repayments, but have not yet made the switch

For businesses in this research who were already aware of the BACS VAT repayment option, the convenience, speed, and security of BACS was not motivating enough to switch. Notably, the participating businesses who used apps to digitally scan payable orders to deposit them had never experienced losing payable orders, or they placed little importance on the speed of receiving their VAT repayment. For this group of participants, the barriers to switching were likely to be related to the perceived time and effort involved in the process of switching.

Businesses who took part in this research, suggested using statistical evidence to demonstrate the lack of security when receiving VAT repayments via payable order to increase the perceived value of the stated benefits for those who did not recognise them. For example, participants suggested stating how many payable orders are not deposited or that are lost would signify that these issues are more prominent than businesses currently believe. Alternatively, businesses in this research felt detailing a business’s annual VAT repayment amount (rather than an individual VAT repayment amount) would motivate them to care more about the security of their payable order.

Another potential idea from participants to encourage switching was to talk about the environmental benefits. For example, this research found that communicating the environmental savings from replacing printing and posting of payable orders could be more compelling than economical costs. Forty-two per cent of participants agreed that environmental benefits would encourage them to switch to BACS, compared to 32% who would switch for cost savings or efficiency gains^{[footnote 6]}.

While participants valued the opt-out message for the convenience of reducing the effort required on their part, they also questioned the inclusivity of this approach for less digitally confident audiences. This perception was driven by a lack of non-digital means to opt-out (in the current hypothetical opt-out approach, businesses are required to opt-out digitally, through the gov.uk website, or QR code.)

For those participants who did not feel the opt-out was the best approach, it was because the idea felt too imminent and there was no warning. Some participants felt promoting the opt-in message first, but informing businesses of the opt-out approach in the future, would be more inclusive and would psychologically prepare businesses for the proposed changes. Another suggestion from participants was to promote the ability to switch back to payable order within a set timeframe, should the transition pose any unexpected challenges to businesses.

6.4 Detailed reactions to the ‘opt-out’ approach stimulus

The opt-out was valued by businesses within this research as it required the least effort. However, participants highlighted that this approach needed to be more accessible. Participants highlighted that one of the key benefits of this option was that it required businesses to do nothing as the switch process happens automatically, so there was no onus on them.

Participants who advocated for this approach accepted digitalisation is occurring across the world, and this switch makes HMRC feel more modern. As a publicly funded body, there was a sense among participants that it should be a more forward-facing organisation. Participants commonly referred to MTD as an example of when they were sceptical of a HMRC initiative but has since proved beneficial, with businesses highlighting similarities in the opt-out approach. From the businesses’ perspective, the opt-out approach also helps HMRC to be seen to moving in a positive direction for businesses.

Despite the opt-out approach being valued amongst the qualitative sample, there were some drawbacks. Some participants felt it was too intrusive and abrupt because it happens automatically. There would be no time to prepare, and it felt too imminent and final. Some participants felt that the opt-out option in the presented form would exclude those who are digitally less confident and would struggle with the opt-out system (as opting-out is only possible through a digital method).

Overall, the businesses in this research felt the opt-out would be the most appropriate approach, but it should be refined to make the option accessible to all. For example, participant suggested softening the language, explaining the rationale to change, and making opting-out easier for digitally vulnerable audiences (for instance, phoneline, email, letter, or another alternative way to opt-out that isn’t digital).

6.5 Detailed reactions to the ‘opt-in’ approach stimulus

This research suggests that the opt-in approach would educate businesses on the switch. However, the findings also indicate that the opt-in approach was unlikely to encourage businesses to convert if they were already aware of BACS as an option of VAT repayment but had not yet acted.

Participants highlighted a barrier to switching to BACS with this method was that there was a requirement to enter government gateway ID information. This was perceived as a greater hinderance versus the benefits of switching, which were insignificant for many.

Participants who advocated for the opt-in approach felt it was more aligned with how a publicly funded body should present itself. This approach was perceived by participants to help support HMRC be seen in a more positive light.

However, businesses in this research expressed a lesser likelihood to act as there was no urgency to do so, and some admitted they were more likely to cash the payable order before reading the letter and then forget to switch.

For participants who preferred to receive VAT repayments as a payable order, the opt-in option was the preferred route over the opt-out option. This group felt that the opt-out approach required more effort if they decided they don’t want to take part in the switch.

7.  Conclusion

This research suggests raising awareness of BACS as a method of VAT repayment could accelerate conversion. Among the participating businesses, lack of awareness was the greatest barrier to switching, with 53% of businesses using payable order to receive their VAT repayments being unaware of BACS as an option^{[footnote 3]}. This research also suggests that for participants who were aware of BACS, communications aimed at accelerating switching should focus on addressing barriers (for instance, the perceived effort and time required to switch) rather than pull factors (for instance, business benefits of switching to BACS). In this research it appears that non-switchers, who were already aware of BACS as a method of VAT repayment, likely understood such benefits already, but these benefits were not successful in eliciting the desired action.

According to this research, any of the tested approaches (opt-out, opt-in, gentle push towards BACS) would address barriers regarding a lack of awareness. However, this research found that even those previously unaware of BACS as a method of VAT repayment were unlikely to switch if the process of doing so was deemed too lengthy in relation to the perceived benefits.

Of those who took part in this research, perceptions of a lengthy switching process could potentially be addressed through a number of actions. These included informing businesses of how long the process should take, pre-loading banking information, or bypassing the government gateway ID stage. However, an opt-out approach that removes any effort required by businesses was strongly valued by the qualitative participants within our sample. To ensure acceptance across less digitally confident participants, it was suggested that HMRC should offer non-digital, or more familiar methods to opt-out (for example, phone-line, address box, or email).

Regardless of approach, businesses who took part in this research emphasise that it was important to understand why this change was happening and to be given sufficient time to prepare themselves for it.

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1. Q11. How many VAT repayments has your business received from HMRC in the last 12 months? Base All participants (526) ↩

2. Q21. Please select the top 3 challenges preventing you from receiving VAT repayments by direct electronic payments (BACS) in the future? Base: All participants not using BACS (421) Average value of VAT repayment, £1 to £1,000 (241), £1,001+ (155) ↩ ↩² ↩³ ↩⁴ ↩⁵

3. Q13. Which of the following methods of VAT repayment from HMRC are you aware of? Base: All respondents (526). Average value of VAT repayment £1 to £500 (214), £501 to £1,000 (72), £1,001 to £5,000 (133), Over £5,000 (74). ↩ ↩²

4. Q15. Which of the following needs are most important to your business when receiving VAT repayments? Base: All participants (526) ↩

5. Q16. Please rate how well the chequing method meets the following needs for your business when receiving VAT repayments. Base: All participants (526), 55+ (229) ↩ ↩²

6. Q22. What would encourage you to consider switching to direct electronic payments (BACS) to receive VAT repayments? Base: All participants not using BACS (421) ↩