AC-2023-LON-000068 - [2025] EWHC 2312 (Admin)

The Claimant (referred to here variously also as “Hotelbeds”, “the taxpayer”, or “HB”) which describe themselves as a “bed bank” are in the business of making wholesale supplies of hotel rooms. They purchase hotel accommodation from UK VAT registered hotels, and sell this to other suppliers of hotel accommodation, for example UK tour operators, events companies, or other entities in their corporate group, for onward distribution. The Claimant’s competitors include Booking.com and Expedia, who operate on an agency model, and Webbeds, which operates on a principal to principal model although is not UK VAT registered. These competitors would not be affected by any failure by the hotels to comply with their requirement to render invoices, either because they are not the recipients of the supply of hotel accommodation (as in the agency model) or because they would not seek to recover UK VAT (as in the case of Webbeds).

The Claimant acts as principal and at the material time was a wholesale buyer and reseller of hotel rooms to, among others, tour operators. This supply when made by a UK VAT registered hotel, is standard rated. The Claimant operates on a “business to business” basis. Under general principles, therefore, where the Claimant paid VAT on the purchase of UK hotel rooms, it is recoverable because it was incurred for the purpose of making onward taxable supplies of hotel accommodation upon which VAT is payable and accounted for on the Claimant’s VAT returns.

As seen, in order to exercise the right to deduction of input tax a taxpayer must generally hold an invoice containing certain prescribed information to enable verification of the supplier, the recipient of the supply, its value and so forth. However, in the present case the Claimant explained to HMRC it has had difficulty obtaining invoices from the hotels who supply them with rooms. The Claimant believes that when their supplier hotels do not provide invoices it is because there is no incentive to do so-payment is not against invoice as in certain other sectors, and as used to be the norm for the Claimant and their suppliers. Now, as is now the industry norm, the Claimant pays the hotels by means of a virtual credit card when the hotel guest checks in or checks out of the hotel, and not following the issue of a VAT invoice to them from the hotels. The Claimant explained the changes and how they also moved to instant payment at the point of check in or check out when virtual credit cards began to be used in the sector in about 2015. The Claimant has asserted throughout that it was commercially impossible to avoid this payment method known as the Global Virtual Credit Card, which use increased from 2017.

Although legally obliged to issue a VAT invoice to the Claimant, in many cases the hotels or other suppliers do not. Receipt of invoices is rare since 2015- and when received they are often not fully compliant with the requirements for such invoices. The Claimant says it has continuously chased the hotels for valid invoices. It is not disputed the Claimant has made efforts to obtain invoices, in particular from December 2021 when a detailed, organised system of follow up was instituted and was evidenced to the Court. HMRC say they do not accept HB have acted sufficiently diligently or reasonably, and for this reason, among others they say repayment may be refused under policy.

The money at stake is a significant sum, running to many millions of pounds in total. The Claimant, noting that the hotels have rendered their output tax to HMRC and noting their own inability to reclaim the input tax with significant resultant cashflow issues, characterise HMRC’s current refusal to allow the corresponding input tax claim as affording a windfall to the Revenue.

The Claimant argues it relied upon HMRC’s stated discretion to accept documents other than a compliant invoice in support of a claim for input tax as expressed in Regulation 29 of the VAT Regulations 1995 (SI 1995/2518), and relevant policy statements, however although HMRC accepted ECN 1 and ECN 2, the two later claims, made on the same basis, were refused. The Claimant argues the refusals show a misunderstanding of the effect of Regulation 29 and a misapplication of the policy set out in HMRC’s documents, and there was an expectation that at least these two later ECNs would similarly be accepted.

The Claimant corresponded at length with HMRC between 3 December 2019 and 16 March 2020 regarding ECN1, explaining that between May 2017 and October 2018, the Claimant had sent over 5,000 emails and made over 800 calls to request invoices or chase for valid VAT invoices where invalid ones had been received.

On 10 June 2019 ECN 1 was presented, seeking recovery of input tax for the VAT periods 1 January 2017 to 31 March 2019 and was approved on 23 March 2020 following HMRC’s checks. However, in accepting the First ECN, HMRC stated they “had some serious concerns about the process going forward.”. The ability to use alternative evidence was described after the ECN acceptance had been communicated, as a “concession to be used in certain circumstances”. The Claimant “should have the correct processes in place” to “ensure invoices were obtained and held”. If they were unable to get this information, they were asked to write to the Written Enquiries Team “to request any special input tax concessions…”.

On 7th April 2020 ECN 2 was submitted by the Claimant and approved on 11 May 2020.

Just before that, on 4 May 2020 the Claimants applied for non-statutory clearance as suggested by HMRC but this was rejected 7 months later on 22 December 2020. In terms that HMRC

“has decided not to exercise its discretion under Regulation 29 of the Value Added Tax Regulations 1995…to allow alternative evidence for the recovery of input tax. Therefore, your request to use this basis to determine input tax recovery on a temporary prospective basis is denied”.

The Officer reflected that the Claimant had changed the payment system voluntarily:

“ … which has led to complications of obtaining VAT invoices. Although the GVCC prompt payment system does not directly facilitate the issue of a VAT invoice for the supply of the hotel room to HB UK Ltd and/or TSW Ltd there is still an obligation on the supplier to provide a VAT invoice. The fact that the GVCC system appears to discourage suppliers from doing so does not absolve them of this obligation. HMRC can find no reason why this responsibility should not be met”

Additional comments were made by the officer with which the Claimant factually disagreed, including that they had chosen to go down this route rather than another payment practice because of the administrative burden. This they said was not so – in particular they had sought to arrange self-billing options but that required agreement with their suppliers which was not forthcoming. The pressure of the commercial environment was relied upon by the Claimant.

The Claimant submitted ECN 3 for the VAT periods 1 March 2020 to 30 June 2021 as stated on the same basis as ECNs 1 and 2. It contained a supporting Excel file with the back-up data covering all bookings subject to the claim. Further requested information was sent both written and in the course of telephone communications through the end of 2021 and early 2022. The Claimant points to occasions when they corrected certain information - as to a small number (17 among 1000 plus suppliers) namely as to £2,007.07 in the claim of £472,989.82. This they characterise as minimal given the scale of operations, although HMRC have drawn attention to the error as justifying doubts they express about accuracy overall when refusing recovery.

In a call in July 2022 HMRC indicated they were minded to refuse ECN 3. There was no decision forthcoming at this time however. The Claimant indicated to them that another claim for the period from June 2021 was already in draft.

As stated the Claimant says that it sought to improve its receipt of actual invoices from suppliers and relies upon what it characterises as further implementation of an “extensive regular and comprehensive process to pursue the hotels for valid invoices”, sending they say “all that information that is required under Regulations to be contained within invoices” to HMRC in support of their ECNs.

ECN 4 was submitted on 25 January 2023 for input tax during the VAT periods 1 July 2021 to 30 November 2022. HMRC asked further questions and further information was provided to them. HMRC indicated they were going to reject ECNs 3 and 4 so there was no point in continuing the ADR which had begun. The Claimant says that during this period as further information became available from hotel suppliers it was provided to HMRC.

Importantly, in correspondence, before the decision currently under challenge was perfected and reflecting earlier communication, the Claimant indicated to HMRC:

“As reported… on 22 March and communicated to you, HBUK has now adopted TOMS VAT treatment for its wholesale supplies from 1 March 2023, meaning that the issue does not extend beyond 28 February 2023.”

The Claimant has described this move as representing a loss to the business which they estimated at about £1.5m. The use of TOMS means, say Hotelbeds, they cannot recover the input tax charged to Hotelbeds on the full value of the supply made, rather, they pay VAT on the margin.