Travel agency trust accounts hold cash until trips end

A travel agency that puts together its own package holidays without flights has to protect its customers' money in case it goes bust, and one of the routes the law allows is a trust. Money protected that way sits with an independent trustee until each holiday has been completed, refunded or forfeited, so the agency cannot use it for hotel deposits, wages or rent. Few choices in travel agency accounting decide so directly how much cash the business has to find of its own.

The choice is about to reach more agencies. From 6 April 2027, under the Package Travel and Linked Travel Arrangements (Amendment) Regulations 2026, separate travel services that a customer chooses and pays for on one visit to the same agency will count as a package. An agency that sells that way becomes an organiser, with an organiser's duty to provide security.

What the regulations allow

Part 5 of the Package Travel Regulations 2018 gives an organiser four ways to provide that security: a bond, a bond backed by an approved body's reserve fund or insurance, an insurance policy, or money held in trust, with insurance added where the packages include transport. Packages that include a flight are normally protected under ATOL instead, the Civil Aviation Authority's scheme, and the regulations leave those to it.

The trust route, in regulation 23, has its own rules:

• Every payment a traveller makes towards a package is held in the UK by a trustee, for the traveller.

• The trustee must be independent of the organiser, and the organiser pays the costs of running the trust.

• Money comes out only when the organiser signs a statement that a holiday has been completed, refunded or forfeited on cancellation. The trustee can ask for evidence first, and a false statement is a criminal offence.

• Interest earned on the money belongs to the organiser and is payable to it on demand.

Where packages include transport, such as a coach, regulation 24 adds insurance to bring travellers home if the organiser fails. It also lets an organiser keep only part of the money in trust if an insurer covers the rest.

Where the cash goes

A bond or an insurance policy costs money, and the customers' money stays in the business's own account. A full trust works the other way round. The customers' money is out of reach until their holiday is over, while the bills for that holiday often fall due well before it.

In a company's accounts, a customer's payment for a holiday not yet taken is not income until the holiday happens. Until then it is money the agency has still to earn. The trust adds a second limit on top, because the cash cannot be spent either.

What it looks like for one organiser

Illustration, not a real client. An agency in Bromley sells coach holidays around Britain, put together from coaches and hotels it books itself. Its packages include no flights, so ATOL does not apply.

By 31 March 2027, customers have paid it £180,000 for trips running from May to September. Its hotels want deposits of 30 per cent by the end of March on £150,000 of rooms, which is £45,000.

• With a full trust, the whole £180,000 sits with the trustee. The £45,000 of deposits has to come from the agency's own reserves or from borrowing, and, cancellations aside, nothing is released until the first trip finishes in May.

• With a bond under regulation 20, the agency must belong to an approved body, and the bond must be big enough to repay what travellers have paid. The regulations set a floor: the smaller of 25 per cent of the payments it expects in the bond's first 12 months and the most it expects to hold at any one time. If it expects £400,000 over the year and holds up to £180,000 at once, the floor is £100,000, and the £180,000 stays in its own account.

• Because its trips include coach travel, either route must also cover bringing travellers home: the bond through an extra sum on top of that floor, the trust through insurance.

Which costs less depends on the agency's reserves, what it pays to borrow and what a bond provider charges, and that is a sum worth doing with real quotes on the desk.

I know what running short of cash does to a small business. I put my own savings into Zmartly for its first two and a half years and still ran out. A trust account can put the same squeeze on a profitable agency, simply because the money arrives months before it can be touched.

Before April

• Check whether any of the ways you sell today will become packages from 6 April 2027, such as separate bookings taken on one visit.

• Get prices for a bond, insurance and a trust before you choose, and ask a trustee what evidence it will want before releasing money.

• Build a month-by-month cash plan in which customers' money for each trip arrives only after the trip ends, and see whether the gap closes.

• Keep the trust's interest and its running costs in your own books, since both belong to the agency.

The choice of bond, insurance or trust does not change the VAT, and packages you sell in your own name still go through the margin scheme. Our page on how the margin scheme works for travel agencies covers that side.

Contracts made before 6 April 2027 stay under today's rules, so the time to run the cash plan is this winter, before the first booking under the new definition is taken.

About the author

Harvey Dhillon is 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 Erwan Hesry on Unsplash.