Input VAT on purchases is usually only recoverable if the taxpayer possesses a valid VAT invoice. It’s less widely known that where the taxpayer does not possess a valid VAT invoice, HMRC have discretion to allow deduction of input VAT on the basis of ‘other evidence’.
Where there are areas of judgement and discretion in how tax legislation is applied, it can be difficult to convince HMRC that a taxpayer has demonstrated enough ‘other evidence’. For any decision maker, it’s human nature to want more information before agreeing a deduction that is outside of the ordinary process. The result of this is that over time, the burden of proof can shift to a higher level than the Tribunals view as reasonable.
In the case of input VAT claims where no (valid) VAT invoice exists, HMRC’s customary response is to instruct the taxpayer to get a VAT invoice from the supplier if they wish to claim the deduction.
This default response doesn’t help progress matters where the entire premise of the claim is that (i) obtaining a VAT invoice is impossible, but (ii) ‘other evidence’ exists.
Such was the case in Hotelbeds UK Limited v HMRC [2025] EWHC 2312 (Admin) and the recent resulting High Court judgement in favour of Hotelbeds.
About the case
Hotelbeds sought to claim input VAT on hotel stays that it had bought in and then sold on to guests.
Because of the ‘virtual credit card’ method and structure of payment, the hotels did not issue VAT invoices to Hotelbeds as the hotels’ systems generally treated Hotelbeds as the guest, not a wholesale business purchaser. Hotelbeds sought to claim input VAT from HMRC on the basis of ‘other evidence’.
Justice Foster DBE commended ‘the carefully collated spreadsheets, the detail, the precision and accuracy of the enormous majority of the many entries’ contrasting this with HMRC citing a single discrepancy in the amount said to be due as a reason for HMRC being unable to validate the claim.
Will this judgement open the floodgates?
This is unlikely. Justice Foster pointed out that: ‘the system of VAT requires that respect is given to the centrality of the invoice.’ HMRC were right (in their public VAT policy documents) to state that they would not apply their discretion where there was a systematic failure to obtain VAT invoices. However, the usual meaning of the word systematic involves the concept of planning as opposed to merely ‘repeated’ behaviour.
In this case, to try to rectify matters, the taxpayer had sent 5,000 emails to 1,000 suppliers requesting VAT invoices in respect of 300,000 supplies of hotel rooms. The claim that Hotelbeds was systematically failing to obtain VAT invoices could be seen as somewhat unfair.
In summary
The Hotelbeds case was a quirky situation where the substance of the transactions clearly should be VAT deductible, but the form of the commercial relationship didn’t fit with HMRC’s expected processes.
In circumstances like these, it’s important to present matters to HMRC as achieving the intention of the legislation, if there is any hope of persuading them to use such discretion. This Tribunal decision should however be helpful in redrawing the lines of expectation and level of evidence needed.
Would you like to know more?
For more information about the VAT input claim rules, and specialist guidance on VAT compliance for your business, get in touch with Luigi Lungarella.
