No, the instruction to "Squawk VFR" (code
1200) would not be proper in this case. But there can be nuances.
First of all (and this is an extremely pedantic point), just because the controller said "Squawk VFR" does not mean they are no longer providing IFR separation. Yes, yes, of course it is a near-certainty that in this situation, the controller is telling the pilot to squawk VFR because they think the pilot wants to maintain VFR. But it is theoretically possible for a controller to maintain the radar identification of any aircraft squawking any code (or even no code at all, if there is sufficient primary radar coverage) and provide IFR separation to that target. Theoretically, of course.
So the real question is:
Is the controller correct in assuming that a pilot’s request to immediately return to the airport and attempt another landing, following a go-around while executing a missed approach, is a request to cancel IFR?
And again the answer is no, this would not be a correct assumption.
The phrase "cancel IFR" appears several times in the 7110.65. The most important one comes right at the beginning of the document, paragraph 2–1–4 Operational Priority:
It is solely the pilot's prerogative to cancel an IFR flight plan.
ATC is not allowed to solicit cancellation of IFR. The pilot must explicitly state that they wish to cancel their IFR flight plan, to which ATC's proper response is: "(Call sign) IFR CANCELLATION RECEIVED" (4–2–10b). If the pilot does not hear this stated, they are well within their rights to assume they are still on an IFR flight plan. The only exception to this is if the pilot of an IFR flight is performing an approach and, prior to completing the approach, requests to remain in the VFR traffic pattern upon completion. In this case the "flight" is terminated and the aircraft, which had been receiving IFR separation (see 4–8–11a1), will maintain VFR and stay with the Tower controller in the pattern (4–8–12). In this situation the controller saying "Squawk VFR" is purely a housekeeping task to make sure the radar scope reflects reality, namely, the aircraft was VFR as soon as they began the "go" portion of their touch-and-go.
An unplanned go-around by an aircraft executing a visual approach is handled differently. Paragraph 7–4–1 Visual Approach is the relevant rule, and the entire paragraph is germane to the discussion, so I have copied it below:
A visual approach is an ATC authorization for an aircraft on an IFR flight plan to proceed visually and clear of clouds to the airport of intended landing. A visual approach is not a standard instrument approach procedure and has no missed approach segment. An aircraft unable to complete a landing from a visual approach must be handled as any go-around and appropriate IFR separation must be provided until the aircraft lands or the pilot cancels their IFR flight plan.
- a. At airports with an operating control tower, aircraft executing a go-around may be instructed to enter the traffic pattern for landing and an altitude assignment is not required. The pilot is expected to climb to pattern altitude and is required to maintain terrain and obstruction clearance. ATC must maintain applicable separation from other aircraft.
- b. At airports without an operating control tower, aircraft executing a go-around are expected to complete a landing as soon as possible or contact ATC for further clearance. ATC must maintain separation from other IFR aircraft.
Notice the difference between a and b. At an untowered airport ATC will only provide separation between the go-around aircraft and other IFR aircraft, which is the only separation IFR aircraft ever receive in Class E airspace.
At a towered airport, ATC may instruct the aircraft to enter the tower pattern, and an altitude assignment is not necessary. The controller will provide "applicable" separation from other aircraft; what this means depends on when the the airspace is Class B, C, or D.
In this situation the aircraft is still IFR, despite being in the VFR traffic pattern. Their clearance limit was the destination airport, and it remains so; they were cleared for a visual approach, and they remain so cleared. They are maneuvering visually and clear of clouds for a landing on the assigned runway.
How the separation is maintained is up to the tower controller. They may call the approach controller and request that no arrivals be cleared for approaches to the airport, thereby effecting non-radar or procedural separation between the aircraft and any IFR arrivals. Or they could coordinate a radar point-out with the approach controller, thus putting the responsibility on them to keep their traffic farther than 3NM/1000' from the go-around aircraft. Or they could use visual separation, whether pilot-applied or tower-applied; visual separation is a valid form of IFR separation, so long as some other form of separation exists before and after the application of vis sep; this means the pilots must have each other in sight, or the controller must have both aircraft in sight, before the aircraft get within three miles of each other.
If the controller is unable to ensure applicable IFR separation, they can say so:
ATC: Unable IFR closed traffic due to IFR inbound. Say intentions.
Then the pilot must decide whether to explicitly say "We'll cancel IFR and enter the pattern" or "Request vectors for another approach."
In no situation should the controller assume the pilot wants to cancel IFR without hearing them say so in no uncertain terms.