New accounting rules decide a travel agency's turnover

A travel agency preparing accounts for a year that began on or after 1 January 2026 has to decide, for each kind of booking it takes, whether it sold the holiday or only arranged it. If it sold it, the sales figure in its accounts is everything the customer paid. If it arranged it, the sales figure is the commission. For an agency with a calendar year, the year to 31 December 2026 is the first to be prepared this way.

What has changed

The Financial Reporting Council rewrote the revenue section of FRS 102, the main UK accounting standard for private companies, for accounting periods beginning on or after 1 January 2026. The smallest companies, which can use FRS 105, have the same start date and the same test. Revenue is now recognised when the customer gets control of what was promised.

The agent or principal question was always in the standard. What is new is how it is answered. Paragraph 23.37 says a business is a principal if "it controls the specified good or service before that good or service is transferred to a customer." The standard gives three signs that point that way:

• it is primarily responsible for providing the service;

• it carries inventory risk, such as rooms or seats it has paid for whether or not they sell;

• it has discretion in setting the price.

Control can also come from putting other suppliers' services together into something new, which is close to a description of a package holiday. A principal reports the gross amount. An agent reports only the fee or commission it expects for arranging the service.

VAT asks a similar question in different words

VAT has its own test, and an agency answers both from the same contracts. HMRC's notice on the Tour Operators' Margin Scheme says a business must use the scheme if it acts as a principal or as an undisclosed agent, meaning one acting in its own name. Commission earned as a disclosed agent, where the operator or airline is named, stays outside the scheme.

The two tests usually point the same way, but they are not the same test, and an answer settled for VAT years ago is not an answer for the accounts. The evidence for both is the supplier contracts, the booking terms and the paperwork the customer receives.

Why the number matters

Profit comes out the same either way. What moves is the size of the business on paper, the figure a bank, a landlord or a buyer looks at first. It also changes timing. An agent's promise is to arrange the booking, so its commission can be recognised once it has done that, with an estimate held back for bookings likely to be cancelled. A principal recognises revenue as the holiday is delivered, and until then a customer's deposit is a liability: money held against a holiday still owed. Corporation tax starts from the profit in the accounts, so a change in timing can move taxable profit from one year to another.

There is a choice to make in the first year for a company on FRS 102. It can restate last year's figures, or leave them alone and put the effect of the change into its opening reserves, applying the new rules only to contracts not yet completed when the new year began. For an agency with a calendar year, those are bookings taken before 1 January 2026 for holidays travelling after it. A micro-entity on FRS 105 has no choice: it applies the new rules only to contracts that begin after its first day under them, and bookings already in progress stay as they were.

What it looks like for one agency

Illustration, not a real client. An agency in Tooting has a 31 December year end. In 2026 it takes two kinds of booking.

• Packages it builds itself. It books flights and hotels, puts them together and sells them in its own name, answering to the customer for the whole trip. Customers pay £850,000 and suppliers are paid £740,000. It combines the services, sets the price and is responsible for delivery, so it is a principal. Sales: £850,000.

• Cruises it sells for the cruise lines. It names the line on every booking, the line sets the price and runs the cruise, and the agency earns 10 per cent. Bookings of £300,000 bring commission of £30,000. It is an agent. Sales: £30,000.

Its turnover is £880,000. The bank saw £1,150,000 go through, and the agency kept £140,000 of margin and commission. For VAT, the packages sit in the margin scheme and the cruise commission outside it, which here matches the accounts. Had the agency booked cruises in its own name, both answers could have changed.

Before the year end

1. List each kind of booking you take: packages, hotel only, flight only, cruises, insurance.

2. For each, read the supplier contract and your own booking terms, and write down who sets the price, who answers to the customer, and who is left holding unsold rooms or seats.

3. Decide principal or agent for each, and how you will handle the first year.

4. Check the VAT treatment against the same contracts while they are on the desk. Our page on settling agent or principal from a travel agency's contracts covers the VAT side.

5. If the turnover figure will move a long way, tell your bank before the accounts arrive.

The decision belongs in December, while there is time to read the contracts properly. Left to the accounts deadline, it becomes a guess.

About the author

Harvey Dhillon is the founder and CEO of Zmartly, a UK accountancy firm for small businesses. He grew up in West London and began his career in investment banking finance at Barclays, before going full-time on Zmartly in 2020. He is a Chartered Management Accountant (ACMA, CGMA).

Featured photo by Jakub Żerdzicki on Unsplash.