The Hotelbeds (HBX Group/Bedsonline)VAT Case explained: What it means for UK Travel Businesses

1. Introduction: Why the Hotelbeds Case matters

Few legal decisions have pulled back the curtain on travel-industry VAT quite like Hotelbeds UK Ltd v HMRC [2025] EWHC 2312 (Admin).
Behind the judgment is a practical story that many global travel companies know too well, such as missing invoices, fragmented hotel systems, and the daily challenge of proving tax compliance in a complex supply chain.

At Antravia, we understand those realities first-hand. Our work across global bedbanks and destination management networks has shown how even the most sophisticated finance systems can struggle to align commercial flow with VAT law. The Hotelbeds decision shows why that matters, and how UK travel businesses can learn from it.

Some background:

In September 2025 the High Court handed down a judgment in Hotelbeds UK Ltd v His Majesty’s Revenue & Customs (“HMRC”) [2025] EWHC 2312 (Admin) in which the taxpayer succeeded in a challenge to HMRC’s refusal to allow input-VAT recovery where the claimant lacked valid VAT invoices but provided extensive other evidence.

While the case does not directly turn on the Tour Operators’ Margin Scheme (“TOMS”) agency/principal border, it is highly relevant for travel-sector businesses (bed-banks, wholesalers, tour operators) because the supply-chain and documentation issues mirror those in accommodation and travel distribution. The ruling reinforces the principle that VAT neutrality cannot be undermined by rigid formal requirements, and that HMRC’s discretion under Regulation 29 of the VAT Regulations 1995 must be exercised fairly.

For UK travel businesses, particularly those with complex supply chains, cross-border elements or using virtual-credit-card payment models, this case demands a review:

• Are you obtaining valid VAT invoices from your suppliers?

• If not, do you have robust alternative evidence?

• Has your model been treated consistently by you and by HMRC in the past?

• Could past refusals of input tax be revisited given this case?

2. Background: Hotelbeds’ Business Model & the Supply-Chain Issue

Hotelbeds UK Ltd is the UK arm of a global Hotelbeds/HBX Group “bed-bank” business: it contracts with hotel accommodation suppliers, purchases rooms wholesale (often using virtual credit cards), and then resells the rooms to tour operators, travel agencies or other intermediaries. Because of the payment model and the commercial arrangements, many of the underlying hotel suppliers did not issue valid VAT invoices to Hotelbeds.

Under standard UK VAT rules, input tax is recoverable by a VAT-registered business to the extent the VAT was incurred for the purpose of making taxable supplies. The usual condition is that the business holds a valid VAT invoice. Regulation 29 of the VAT Regulations gives HMRC discretion to allow deduction even where a valid invoice does not exist, if “other evidence” is satisfactory.

In Hotelbeds’ case:

• It submitted four Error Correction Notices (ECNs) for input tax claims for periods between circa 2019–2022.

• Two early ECNs were accepted by HMRC (even though no valid invoices) on the basis of “other evidence”.

• Two later ECNs (referred to as ECN3 and ECN4) were refused by HMRC on the basis that Hotelbeds had “systematically failed” to obtain valid VAT invoices.

Hotelbeds also informed HMRC that from 1 March 2023 it was adopting the TOMS for its onward supplies, removing the requirement for input-tax recovery on those onward sales.

3. HMRC’s Objection & Hotelbeds’ Response

HMRC’s position:

• HMRC argued that Hotelbeds had a “systematic failure” to obtain valid VAT invoices from its hotel suppliers, which in HMRC’s view meant it should not exercise its discretion under Regulation 29 to allow deduction.

• HMRC relied on its published guidance (e.g., VAT Notice 700 section 16.8) which states that where a trader “systematically fails” to obtain valid VAT invoices, HMRC may decline to exercise discretion.

• HMRC refuted that the alternative evidence provided by Hotelbeds was sufficient in those later periods, given the volume of missing invoices and the changed business model (payment by virtual credit-card).

Hotelbeds’ response:

• Hotelbeds argued that from the outset it had sought to obtain invoices (it claimed chasing some 900 suppliers for 300,000 supplies).

• It argued that the earlier ECNs accepted by HMRC created a legitimate expectation of similar treatment for later ECNs.

• It submitted that HMRC’s guidance and policy were ambiguous and that it was unfair for HMRC to treat “missing invoices” differently when alternative evidence was robust. The argument was that the purpose of the legislation (neutrality of VAT) would be undermined if no deduction were allowed simply because an invoice was missing despite substantial proof that the VAT was incurred.

4. The High Court Decision: Key Findings

The High Court allowed Hotelbeds’ application for judicial review and found in its favour. Key findings included:

• HMRC’s guidance, including VAT Notice 700 and internal policy, was unclear, ambiguous and inconsistent in relation to cases where no invoice (rather than an invalid invoice) was held. The court found that the guidance did not clearly preclude HMRC from exercising discretion where no invoice existed.

• HMRC had mis-applied its discretion under Regulation 29 by effectively treating “no invoice” as an automatic bar rather than a case-by-case exercise of discretion. The Court held that the purpose of input tax deduction (and VAT neutrality) meant that dismissal solely for missing invoices would be disproportionate in appropriate cases.

• The term “systematic failure” in VAT Notice 700 could not simply be equated to “repeated failures”. The court held that “systematic” implied a structural plan or system of non-compliance that undermines the revenue; mere repeated missing invoices did not automatically amount to “systematic failure”.

• There was no risk of fraud in Hotelbeds’ case: HMRC had accepted earlier ECNs, output tax had been accounted for, and the evidence provided was substantial. This weighed in favour of allowing discretion.

• Hotelbeds’ adoption of TOMS from March 2023, and the prior acceptance of ECNs, added to the legitimacy of its expectation and supported its fairness argument.

In practical terms, HMRC’s refusal to allow the later ECNs was held to be unlawful, irrational and unfair.

5. Implications for UK Travel/Accommodation Businesses

Although the case is fact-specific to Hotelbeds, the implications for travel industry participants in the UK are significant:

a) Invoice-less or “virtual payment” models

Many travel-sector intermediaries (bed-banks, wholesalers, tour operators, payment platforms) use virtual credit cards, prepayment arrangements or chain-structures where the supplier may not issue a standard VAT invoice. The Hotelbeds ruling confirms that missing invoices do not automatically prevent input-tax deduction if other evidence is strong.

b) Alternative evidence must be robust

This case underlines that when valid VAT invoices cannot be obtained, businesses should maintain:

• agreements/contracts with suppliers

• payments records (bank/virtual card)

• reconciliations showing supplier VAT registration numbers

• communications chasing invoices

• accurate spreadsheets/logs of supplies
  If the documentary trail is credible and shows VAT was incurred, this strengthens any claim under Regulation 29.

c) HMRC discretion & fairness

HMRC cannot mechanically refuse deduction solely because an invoice is missing. Businesses should expect HMRC to exercise discretion in a principled and consistent manner. Where HMRC has previously accepted claims on similar footing, sudden refusals may raise issues of legitimate expectation or unfairness.

d) Review past refusals

If your business had earlier claims refused because invoices were missing, this judgment suggests there may be scope to revisit those claims, but subject to limitation, evidence and commercial viability.

e) Supply-chain models deserve review

Travel businesses should revisit their contracts and payment flows:

• Are they clearly principal or agent?

• Who issues the invoice to whom?

• Are hotel suppliers issuing valid VAT invoices when required?

• Does the payment model (virtual card, commission model) affect invoice issuance?
  These questions are particularly relevant in the context of TOMS, agency/principal definitions and intermediated accommodation supply chains.

6. How Antravia UK suggests you prepare & protect your business

As part of your travel-business compliance and VAT risk management, we recommend the following steps:

1. Conduct a supply-chain documentation audit
   Review all your supplier relationships (hotels, destination services, DMCs, bed-banks). Check how many valid VAT invoices you receive. For those missing, document the reason and gather alternative evidence.

2. Inventory your claims and refusals
   If you have claimed input tax where invoices were missing or refused claims in the past, map the amounts, dates and underlying reasons. Consider whether the Hotelbeds judgment provides a basis for reconsideration.

3. Chase outstanding invoices proactively
   Send formal chaser letters/emails to suppliers who failed to issue invoices. Maintain a log of your efforts— this supports your “other evidence” position.

4. Check your business model for VAT-risk exposure

   • Are you acting as principal or agent in your contract with the end traveller (important for TOMS scope)?

   • Are supplies “used and enjoyed” in the UK?

   • Are you VAT-registered in the UK (or should you be)?

   • Do you have a UK establishment (permanent place) that may impact place-of-supply?

   • What is the impact of using virtual credit cards or other non-standard payment mechanisms on invoice issuance?

5. Document your strategy for missing invoices
   Prepare an internal memorandum or policy note that sets out your fallback process when a supplier fails to issue a valid invoice: the steps you will take, the alternate evidence you will collect, the internal escalation, and how you assess reasonableness.

6. Seek specialist support for major claims
   If you have large sums at stake (especially involving ECNs > £millions), consider specialist tax dispute support. The Hotelbeds case shows that challenging HMRC refusal via judicial review is possible, though this is an exceptional route.

7. Monitor HMRC guidance and policy changes
   Given this judgment, HMRC may update its guidance or approach to alternative evidence and invoice-less claims. Stay alert to any revised VAT Notices or Internal Manual updates.

7. Conclusion: What Comes Next

The Hotelbeds decision marks a meaningful shift in how UK VAT law applies to the travel and accommodation supply-chains with missing invoices. While it does not create a blanket right to deduct input tax without invoices, it clarifies that, in the right facts, missing invoices will not be a fatal barrier, but provided the taxpayer has strong alternative evidence and HMRC’s discretion is exercised fairly.

In the fast-moving travel sector, characterised by virtual payments, complex chains and global suppliers, this case is a timely reminder for UK travel businesses to sharpen their VAT architecture: documentation, contracts, supplier practices, payment flows and audit-trails all matter.

For your agency, host-supplier or bed-bank business, we recommend acting now to review your model and ensure you are not exposed to claim-losses or unrecognised risk.

At Antravia UK, we specialise in tax & VAT compliance for the travel sector. If you would like support in reviewing your VAT recovery strategy, assessing invoice-risk, or structuring your supply-chain more robustly, please do reach out.

References

1. The King (on the application of Hotelbeds UK Ltd) v Commissioners for HMRC [2025] EWHC 2312 (Admin)

2. VAT Regulations 1995 (Reg. 29)

3. HMRC VAT Notice 700: The VAT Guide (Section 16.8)

4. HMRC Manual VIT31200 – Alternative Evidence for Input Tax Claims

5. CMS Law Now (2025), BKL Tax Insight (2025), Claritas Tax Brief (2025)

Disclaimer

This article is provided for general information purposes only and does not constitute accounting, tax, or legal advice. Regulations, tax rules, and reporting requirements may change, and their application can vary depending on your business structure and circumstances. Readers should seek professional guidance from a qualified accountant or adviser before making any financial, tax, or compliance decisions. Antravia UK accepts no responsibility for any loss arising from reliance on the information contained herein.