Input VAT Without a VAT Invoice: When Can HMRC Still Allow Recovery?

Holding a valid VAT invoice has long been treated as the cornerstone of input tax recovery. However, recent case law has confirmed that the absence of a VAT invoice does not always mean the end of the road for businesses seeking to recover VAT.

In R (Hotelbeds UK Ltd) v HMRC [2025] EWHC 2312, the Administrative Court required HMRC to allow input tax recovery even though the taxpayer held no VAT invoices at all. While this is a helpful decision for businesses, it does not remove the need for invoices in most cases and should not be read as a blanket relaxation of the rules.

This article explains how VAT invoice requirements operate in UK law, the scope of HMRC’s discretion to accept alternative evidence, and when businesses may still be able to recover input VAT without a valid invoice.

The role of VAT invoices in input tax recovery

Under UK VAT law, a business is normally entitled to deduct input VAT only if it holds a valid VAT invoice. This reflects long-established EU VAT principles, which continue to influence UK VAT despite Brexit.

However, EU law has also long recognised that substance should prevail over form. Where the substantive conditions for input tax recovery are met (namely that a taxable supply has taken place and VAT has been correctly charged), excessive reliance on formalities can undermine the principle of VAT neutrality.

This tension between formal invoice requirements and substantive entitlement is central to the recent case law.

HMRC’s discretion to accept alternative evidence

UK domestic law provides HMRC with a discretionary power to relax the normal evidence requirements.

Regulation 29(1) of the VAT Regulations 1995 allows HMRC to:

• accept alternative evidence instead of a VAT invoice, or
• direct that input tax may be deducted even where invoice requirements are not met.

Some earlier cases suggested that this discretion existed mainly to give effect to EU law principles, particularly where an invoice was defective rather than entirely absent. However, the courts have now made it clear that HMRC’s discretion is also governed by public law principles, including the obligation to act reasonably and fairly.

Crucially, retained EU law does not displace HMRC’s public law duties.

Public law and unreasonable refusal of input tax

Even where EU law conditions for mandatory recovery are not met, HMRC cannot exercise its discretion arbitrarily.

If HMRC refuses input tax recovery:

• despite clear evidence that VAT was properly incurred, and
• where denying recovery would breach VAT neutrality,

That refusal may be challenged as unreasonable.

Such challenges can be brought:

• before the First-tier Tribunal (which exercises a supervisory role), or
• by way of judicial review in the High Court, where tribunal proceedings are not an adequate remedy.

This was the route taken in Hotelbeds.

The Hotelbeds decision explained

Hotelbeds UK Ltd operated a business purchasing and reselling hotel accommodation. It incurred VAT charged by hotels but, in many cases, could not obtain valid VAT invoices from those suppliers.

Importantly:

• there was no dispute that VAT had been charged and incurred,
• there was no suggestion of fraud, and
• the failure to obtain invoices was not structural or deliberate.

HMRC nevertheless refused input tax recovery on the basis that no valid VAT invoices existed.

The Administrative Court found this refusal to be unreasonable.

A key element of the judgment was the principle of VAT neutrality. The Court emphasised that:

• Over-recovery of input tax harms the Exchequer, but
• Denying recovery of VAT properly incurred is equally wrong.

The Court held that HMRC’s discretion exists to prevent such outcomes and that refusing to exercise it in these circumstances defeated the very purpose of the provision.

What Hotelbeds does – and does not – decide

The Hotelbeds decision is helpful, but its scope is limited.

It does not establish that:

• VAT can always be recovered without an invoice, or
• HMRC must routinely accept alternative evidence in all cases.

Instead, the case confirms that HMRC must exercise its discretion lawfully and reasonably, particularly where refusing recovery would undermine neutrality.

The success of the taxpayer in Hotelbeds rested on several critical factors:

• The business had made genuine and sustained efforts to obtain valid VAT invoices.
• There was clear evidence that taxable supplies had taken place and that VAT was correctly charged.
• There was no evidence of fraud or abuse.
• The business had put procedures in place to prevent the problem recurring.

Contrast with Eurocent: limits of the discretion

The limits of the Hotelbeds decision are illustrated by Eurocent (Buckingham) Ltd v HMRC [2025] UKFTT 1253 (TC).

In that case, the First-tier Tribunal upheld HMRC’s refusal to allow input tax recovery where:

• the documentation did not clearly establish whether services had been supplied at all,
• it was unclear who had paid for them, and
• it was uncertain whether output VAT was due in the first place.

In those circumstances, allowing recovery would not necessarily restore neutrality and could instead undermine it. The decision therefore does not conflict with Hotelbeds but sits alongside it, reinforcing that evidence quality is critical.

Practical approach for businesses

Given the current state of the law, businesses that have incurred VAT but do not hold a valid VAT invoice should consider the following steps.

1. Seek invoice correction where possible

Where an invoice exists but is defective, the first step should always be to request a corrected invoice.

If the defects relate to less critical elements (such as dates or descriptions), case law allows the correction to be treated as having retrospective effect. This can be particularly important where input tax has already been claimed, as it may avoid repayment interest.

2. Assess whether substantive information is present

Where a corrected invoice cannot be obtained, the next question is whether the available documentation contains the core information needed to establish that:

• a taxable supply took place, and
• VAT was properly chargeable.

If so, HMRC may be required to accept alternative evidence and allow recovery.

3. Consider HMRC’s discretion where invoices are absent

Where an invoice is entirely absent or fundamentally defective, input tax recovery may still be possible if:

• the evidence clearly demonstrates VAT was incurred,
• neutrality would otherwise be breached, and
• there are no systemic or abusive issues.

In such cases, reliance is placed on HMRC’s discretion and the principles confirmed in Hotelbeds. HMRC’s current policy position is set out in its VAT Input Tax Manual at VIT31200.

Timing and procedural considerations

Outside limited correction scenarios, later allowances of input tax will not necessarily have retrospective effect. This can affect:

• repayment interest, and
• potential penalties.

Where recovery depends on HMRC exercising discretion, claims should normally be made outside the VAT return, rather than adjusting a previously submitted return.

Practical tip

A valid VAT invoice remains the safest route to input tax recovery. However, where one cannot be obtained despite genuine efforts, businesses should not assume recovery is impossible. Strong evidence, good compliance history and an understanding of HMRC’s discretion can still make recovery achievable.

How we can help

If your business has incurred VAT but lacks valid VAT invoices, we can help you assess whether input tax recovery may still be possible. We can review the available evidence, engage with HMRC where appropriate, and advise on the best procedural route to protect your position. Please contact us to discuss your circumstances.