Hotelbeds UK Ltd operates as a wholesale supplier of hotel accommodation, purchasing rooms from UK VAT-registered hotels and reselling them to travel businesses.
Due to industry practice, Hotelbeds struggled to obtain valid VAT invoices from hotels, despite extensive efforts. HMRC accepted two earlier Error Correction Notices (ECNs) based on alternative evidence but refused two later ECNs, citing a “systematic failure” to obtain invoices.
Hotelbeds sought judicial review, arguing HMRC misapplied its discretion under Regulation 29 and failed to follow its own guidance (VAT Notice 700, VIT31200, Statement of Practice). The High Court agreed, finding HMRC’s refusal unlawful and its interpretation too narrow, noting the taxpayer had taken reasonable steps to obtain the VAT invoices and provided sufficient alternative evidence. While HMRC’s guidance addressed invalid invoices, the Court confirmed that HMRC's discretion extends to cases with no invoice at all.
The judgment stressed VAT neutrality, proportionality, and absence of fraud or revenue risk. HMRC’s inconsistent approach and misunderstanding of its policy led the court to order acceptance of the claims. Businesses can recover input VAT without invoices if they demonstrate robust alternative evidence and reasonable efforts to obtain invoices.
Key takeaway / recommendation
Businesses facing practical barriers to obtaining VAT invoices should document all efforts and collate alternative evidence. HMRC must apply its discretion fairly and consistently, considering the principles of VAT neutrality and proportionality. This decision empowers taxpayers to challenge refusals where reasonable steps have been taken to obtain invoices , but highlights the importance of maintaining detailed records and contractual documentation and engaging proactively with suppliers and HMRC.
Reference / Link to document
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