Hotelbeds clarifies HMRC’s discretion to allow input tax recovery

The High Court allowed the taxpayer’s application for judicial review, deciding that HMRC’s decision to refuse to exercise their discretion to allow the taxpayer’s claims for recovery of input tax on the basis of alternative evidence (in the absence of valid VAT invoices) was unlawful. The case is a salutary reminder for HMRC that they must, in instances where the statutory framework affords HMRC an element of discretion, exercise that discretion (in particular, the discretion contained in regulation 29 of the VAT regulations) in a way which is consistent with general public law principles.