VAT Invoices & Alternative evidence

A recent judgment by the High Court saw Hotelbeds UK Ltd successfully challenge HMRC’s refusal of input VAT recovery without valid VAT invoices.

Background

Hotelbeds operates a wholesale supplier of hotel accommodation, they purchase rooms from various suppliers and resell them to travel businesses.  The case focuses on four error corrections seeking to reclaim input VAT where they didn’t hold valid VAT invoices. All four were supported by an extensive range of alternative evidence to support its claims, HMRC accepted two of these and rejected the other two.

Legal Issues

This case revolved around the VAT Regulations, which gives HMRC discretion to allow input VAT recovery without a valid invoice, if alternative evidence is sufficient.  Hotelbeds argued that HMRC:

• Misapplied this discretion.

• Ignored its own guidance.

• Breached the principle of legitimate expectation, given its prior acceptance of similar claims.

• Violated the EU principle of effectiveness, relevant to the pre-Brexit periods in question.

HMRC’s Counterpoint

HMRC claimed Hotelbeds had consistently failed to obtain valid invoices, partly due to its use of virtual credit cards. It argued that Regulation 29 was meant for defective invoices, not cases with no invoice at all, and raised concerns about fraud and revenue protection.

The court sided with Hotelbeds, in a ruling that could have implications for how many businesses approach VAT recovery.

Key Takeaways: 

• HMRC must apply Regulation 29 fairly and consistently, even where invoices are missing.

• Alternative evidence can be sufficient for VAT recovery.

• Prior HMRC conduct and published guidance can create legitimate expectations.

• The courts will intervene when HMRC decisions are “irrational” or “procedurally unfair”.

This case is a reminder that fairness and consistency must underpin tax administration. It also opens the door for other businesses to challenge similar refusals, especially where there’s no fraud risk and output tax has been accounted for.

If your business has faced VAT recovery issues due to missing or non-standard invoices, now is the time to reassess and VITA would be happy to support where needed.