Hotelbeds UK Ltd v HMRC: Alternative Evidence and the Right to Deduct VAT 

Sarabjit Singh KC, instructed by Eversheds Sutherland, successfully acted for the taxpayer against HMRC in the recent judicial review tax case of Hotelbeds. 

Background 

The High Court’s Administrative Division has handed down a significant judgment in Hotelbeds UK Limited v Commissioners for HMRC [2025] EWHC 2312 (Admin), ruling in favour of the claimant. The decision deals with whether HMRC can refuse input VAT recovery where a business is unable to obtain VAT invoices but provides extensive alternative evidence. 

Hotelbeds UK Limited (“Hotelbeds”) acts as a wholesale supplier of hotel rooms, purchasing accommodation from UK hotels and reselling to tour operators and intermediaries. Payment to hotels was made using Virtual Credit Cards (VCCs) at the point of guest check-in or check-out. This system discouraged hotels from issuing VAT invoices, despite their statutory obligation to do so under the VAT Regulations 1995. 

The Dispute 

Between 2019 and 2023, Hotelbeds submitted four Error Correction Notices (ECNs): 

• ECNs 1 and 2 (2019–2020): accepted by HMRC, based on alternative evidence such as supplier spreadsheets, VAT numbers, and transaction details. 

• ECNs 3 and 4 (2021–2023): covering March 2020 to November 2022, worth millions in input VAT. HMRC refused, citing a “systematic failure” to obtain invoices and rejecting alternative evidence. 

By March 2023, Hotelbeds had adopted the Tour Operators’ Margin Scheme (TOMS), which removed the issue for future transactions. Nonetheless, HMRC refused ECNs 3 and 4 in May 2023. 

Hotelbeds sought judicial review, arguing that HMRC: 

• Misapplied Regulation 29 VAT Regulations 1995, which allows HMRC to accept alternative evidence. 

• Failed to apply the principles of VAT neutrality and proportionality. 

• Ignored its own policy guidance, including VIT31200 and the 2007 Statement of Practice, which expressly allow deduction without an invoice where appropriate. 

The Court’s Findings 

The court ruled that HMRC’s approach was flawed for several reasons: 

1. Failure to Assess Neutrality and Proportionality 

• VAT neutrality ensures that businesses are not burdened with irrecoverable VAT when supplies are genuinely taxable. 

• Hotelbeds provided sufficient data showing VAT had been properly charged and paid, with no evidence of fraud or revenue loss. 

2. Misapplication of Policy Guidance 

• HMRC’s internal guidance primarily addressed invalid invoices, not cases where no invoice was issued. 

• Hotelbeds’ spreadsheets and supporting data identified suppliers, VAT numbers, supply dates, and VAT amounts, meeting evidentiary standards. 

3. Rejection of “Systematic Failure” Argument 

• The failure to issue invoices lay with hotel suppliers, not Hotelbeds. 

• Hotelbeds had made repeated efforts to secure invoices, demonstrating good faith. 

4. Failure to Consider Adoption of TOMS 

• By adopting TOMS before HMRC’s final refusal, Hotelbeds had eliminated future compliance concerns. 

• HMRC’s continued rejection ignored this development. 

Legal Framework 

• VATA 1994, ss. 24–26: establish the right to deduct input VAT. 

• VATR 1995, Reg. 29: gives HMRC discretion to allow deductions without a valid VAT invoice where alternative evidence suffices. 

• EU Principal VAT Directive (Arts. 167–180): enshrines the right to deduct VAT and the importance of neutrality. 

• Key Case Law: 

• Barlis 06 (C-516/14): right to deduct should not be denied if essential information is available. 

• Tower Bridge GP Ltd v HMRC [2022] STC 1324: proportionality must guide HMRC’s decisions. 

Implications 

This ruling reinforces that: 

• HMRC must balance revenue protection with VAT neutrality and proportionality. 

• Businesses can rely on alternative evidence where invoices are unavailable, provided it clearly shows taxable supplies and VAT amounts. 

• Refusal to consider such evidence risks judicial review. 

• Sectors with complex supply chains (hospitality, travel, wholesale intermediaries) should review their compliance frameworks to ensure they have fallback evidence if suppliers fail to issue invoices. 

📌 Conclusion 

The Hotelbeds ruling is a reminder that VAT recovery cannot be denied purely on technicalities when businesses act in good faith and provide comprehensive evidence. HMRC must apply Regulation 29 VATR and its own policies fairly, ensuring neutrality and proportionality. 

For businesses, the message is clear: document everything, pursue invoices diligently, but retain alternative evidence robust enough to satisfy HMRC and the courts, if challenged. 

Commentary 

The Hotelbeds decision highlights a growing tension between HMRC’s drive to tighten compliance and the courts’ insistence on fairness and neutrality in VAT. While businesses should not take this ruling as a licence to be lax about obtaining invoices, it does show that the courts will not support HMRC when it takes an overly rigid stance in the face of genuine commercial realities. 

From a practical perspective, the case underlines the importance of maintaining detailed, verifiable records beyond invoices, especially in sectors where suppliers may fail to meet their obligations. It also serves as a reminder that judicial review remains a powerful tool where HMRC’s decisions appear disproportionate or inconsistent with established policy. 

For advisers, the ruling is useful leverage in disputes where HMRC rejects claims on narrow technical grounds. It strengthens the argument that substance and neutrality should prevail over form, if taxpayers can demonstrate the integrity of their records. 

Ultimately, Hotelbeds is not just about one company’s VAT recovery, it is a precedent that should encourage businesses across affected industries to review their systems, tighten their evidence trails, and be prepared to defend their rights if challenged. 

What this means for you 

This ruling reinforces a key VAT principle: substance over paperwork. If you’ve had input VAT blocked due to missing invoices, this case could open the door to a successful reclaim, especially where there’s no fraud or risk to the Exchequer. 

👉 If you’re unsure whether your business has missed out on VAT recovery, contact us for a free no-obligation review. We can assess whether claims previously written off could now be recoverable under the clarified rules. 

Contact Jane Deeks at Deeks VAT Consultancy for professional advice across all industries.   

jane@deeksvat.co.uk | 07710553831 | LinkedIn