Tour Operator Accounting for UK Companies in 2025

Deposits, Client Money and Revenue Recognition under FRS 102 and IFRS

This article has been adapted specifically for the UK market from our US article available here - Tour Operator Accounting: Deposits, Client Money, and Revenue Recognition

UK tour operators work within a tight combination of financial reporting standards and consumer protection rules. In 2025, as outbound travel continues to recover and competition remains intense, operators need accounting policies that are technically correct, easy to apply in practice, and aligned with:

• FRS 102 for most UK entities

• IFRS 15 for groups reporting under IFRS

• The Package Travel and Linked Travel Arrangements Regulations 2018 (PTRs)

• ATOL requirements administered by the Civil Aviation Authority

• HMRC rules on the Tour Operators’ Margin Scheme (TOMS)

In simple terms this means: deposits are liabilities until you have delivered the holiday, client money is often legally restricted by PTR and ATOL rules, and revenue is recognised as and when performance obligations are satisfied, not when cash arrives in the bank.

1. Deposits and Client Money under FRS 102 and UK Travel Law

1.1 Deposits as contract liabilities

Under FRS 102 Section 23, amounts received from customers before you have delivered the service are recognised as deferred income, often described as contract liabilities. Revenue is recognised only when the significant risks and rewards have passed to the customer and the performance obligation has been fulfilled.

For example, if a customer pays a £2,000 deposit for a seven day Mediterranean package:

• On receipt of the cash you debit bank and credit deferred income.

• The amount stays as a liability on the balance sheet until either:

  • you deliver the relevant part of the holiday, or

  • the customer cancels and, under the booking conditions, you are entitled to retain the deposit with no further obligation.

Even where a deposit is described as non refundable, you do not simply take it to revenue on the basis of the wording alone. You consider whether you still owe the customer services or a credit. If you still have obligations, the deposit remains a liability.

If doubts arise about whether the customer will pay the balance, you assess recoverability and consider impairment, but you do not reclassify unearned deposits as revenue simply because time has passed.

1.2 Client money, PTRs and ATOL

Accounting for deposits is only one part of the picture. UK travel law sets rules on how those funds are protected.

• The Package Travel Regulations require organisers of qualifying packages to provide insolvency protection so that customers can be refunded and repatriated if the organiser fails.

• ATOL covers flight inclusive holidays and requires licensed firms to hold appropriate protection, through bonding, segregation of funds or other approved mechanisms.

In practice, many UK tour operators use some combination of:

• Trust accounts, where customer money is paid into a separate bank account and only released for specific purposes such as paying suppliers, refunding customers or transferring earned commission after the holiday has been delivered.

• Bonds, usually provided by a bank or insurer, which can be called on to repay customers if the business fails.

• Insurance backed schemes, often through trade bodies or approved insurers, which guarantee refunds and repatriation in an insolvency.

Where trust accounts are used, the cash in those accounts is still recognised on the balance sheet, but it is subject to legal restrictions. Good practice is to disclose this clearly for example “Client funds of £X are held in trust and are not available for general use by the company”.

Failure to comply with PTR or ATOL conditions can lead to regulatory action, fines, loss of licences and civil claims. From an accounting perspective, the key point is that not all cash is freely available and readers of the financial statements need to understand that.

2. Revenue Recognition under FRS 102

2.1 Over time and point in time

FRS 102 uses a principles based approach. For tour operators, revenue is generally recognised when the holiday is delivered, either:

• Over time, where the customer receives and consumes the benefits as you perform, for example day by day on a tour, or

• At a point in time, for separate, one off services such as a standalone excursion or add on.

For a multi day package it is common to treat the holiday as a single service that is delivered over its duration and to recognise revenue on a straight line basis per day, unless there is a better measure of performance. In some cases a milestone approach is used, for example recognising a portion of the price on completion of travel to the destination, a portion on completion of the core stay, and a portion on completion of excursions, where that better reflects how value is delivered.

Optional extras that are genuinely separate and priced separately, such as an additional day trip or a premium transfer upgrade, can be recognised at the point they are delivered.

2.2 Breakage and unused services

Customers do not always use everything they have purchased. If a customer chooses not to attend an included excursion or skips a meal that has been paid for as part of an all inclusive package, the operator needs to decide when, if at all, to recognise revenue related to those unused services.

Under FRS 102, you can recognise income associated with breakage when:

• you are entitled to retain the amounts, and

• you have no further obligation to the customer.

In practice, many operators use historical data to estimate typical levels of non use and incorporate that into revenue recognition, updating estimates as patterns change.

2.3 Principal and agent considerations

A recurring question is whether the tour operator is acting as principal or as agent in relation to different components of the package.

You are likely to be principal where you:

• control the key elements of the holiday

• take inventory risk on hotel rooms or seats

• set the overall price to the customer

• are responsible for delivery and dealing with complaints.

In that case, you recognise revenue at the gross amount charged to the customer and record the underlying supplier costs separately.

You are more likely to be agent where you simply arrange services on behalf of the customer, with the supplier billing the customer directly and paying you a commission. In that case you recognise only your net fee as revenue.

Judgements and policies in this area should be documented and disclosed, because they affect the size of the top line and gross margin.

3. IFRS 15 for UK Groups

Larger UK groups that report under IFRS apply IFRS 15 Revenue from Contracts with Customers. The principles are aligned with FRS 102 but structured around a five step model:

1. Identify the contract with the customer.

2. Identify the performance obligations.

3. Determine the transaction price.

4. Allocate the transaction price to the performance obligations.

5. Recognise revenue when or as each performance obligation is satisfied.

3.1 Performance obligations in package holidays

A typical package may include accommodation, transport, excursions, meals and transfers. Under IFRS 15, you assess whether these are:

• distinct services that are separately identifiable, or

• inputs to a single combined service.

Most traditional UK package holidays are sold as a single combined experience and meet the criteria for a single performance obligation, because:

• the services are highly integrated

• the customer views them as one combined holiday rather than separate items

• the tour operator manages substitutions and rearrangements as part of its overall obligation.

Optional extras that are clearly priced and sold separately, such as additional excursions purchased after the main booking, are more likely to be distinct performance obligations.

3.2 Transaction price and allocation

Where there is more than one performance obligation, IFRS 15 requires the total transaction price to be allocated to each obligation based on relative stand alone selling prices.

For tour operators, stand alone selling prices might be based on:

• published flight only fares

• room only or board rate cards

• standard price lists for excursions

• cost plus expected margin for unique components.

The allocation then drives how much revenue is recognised when each obligation is delivered.

3.3 Revenue recognition and principal versus agent

Once you have identified obligations and allocated the price, revenue is recognised either over time or at a point in time depending on when control passes.

The principal versus agent assessment under IFRS 15 is similar in substance to FRS 102 but framed in terms of control. If you control the services before they are transferred to the customer, you are principal and recognise gross revenue. If you only arrange services on behalf of another party, you are agent and recognise your fee.

IFRS 15 also requires more extensive disclosures, including:

• disaggregation of revenue by type, geography or other meaningful categories

• information about remaining performance obligations

• explanations of significant judgements in applying the standard.

4. UK VAT and the Tour Operators’ Margin Scheme (TOMS)

Accounting revenue under FRS 102 or IFRS 15 is not the same as the VAT base. UK tour operators are often within TOMS, which is set out in HMRC Notice 709/5.

Under TOMS:

• VAT is charged on the margin, that is the difference between the selling price and the direct costs of the travel services, rather than on the full selling price.

• The scheme applies to certain supplies of travel services where the operator is dealing in its own name and using supplies of travel and related services from third parties.

• The standard VAT rate, currently 20 per cent, is applied to the margin.

The tax point for TOMS may arise earlier than full delivery of the holiday, for example when the invoice is issued or payment is received. This creates timing differences between accounting revenue and VAT calculations that need to be tracked and reconciled.

Good practice is to maintain a clear bridge between:

• turnover reported in the financial statements, and

• the margin and VAT reported on returns.

This is especially important in periods of growth or contraction, when changes in deposit patterns can have a noticeable effect on cash tax.

5. Financial Statement Disclosures and 2025 Priorities

For UK GAAP reporters, FRS 102 requires disclosures that allow users of the accounts to understand the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. For tour operators this usually includes:

• The accounting policy for recognising revenue from tours and packages, including whether recognition is over time or at a point in time.

• The treatment of deposits and deferred income, with a reconciliation of opening and closing balances where material.

• The existence and nature of any restrictions on cash, such as balances held in trust under PTR or ATOL arrangements.

• Any significant judgements in determining whether the company acts as principal or agent.

For groups reporting under IFRS, IFRS 15 adds more structured disclosure requirements, including:

• Disaggregation of revenue into categories that reflect how economic factors affect the amount, timing and uncertainty of cash flows.

• Information on remaining performance obligations and when the entity expects to recognise related revenue.

• Details of key estimates and judgements in applying the standard.

Looking ahead, the ongoing FRC review of FRS 102 is expected to bring it closer to IFRS 15 in future periods. It is sensible for UK tour operators to monitor those developments and to ensure that systems and processes can support a more granular, contract based approach to revenue.

6. Practical Checklist for UK Tour Operators

For 2025, a pragmatic checklist for finance teams might include:

• Confirm that all deposits and advance payments are recorded as deferred income until the relevant services are delivered or contractually forfeited.

• Review trust account and bonding arrangements, ensure that restricted cash is correctly identified and disclosed, and that reconciliations are up to date.

• Document principal versus agent decisions for core product lines and keep this under review as business models evolve.

• Align revenue recognition policies under FRS 102 or IFRS 15 with operational data, so that income is recognised as tours are actually delivered.

• Maintain a clear reconciliation between accounting revenue and TOMS margin for VAT, including explanation of timing differences.

• Update accounting policy disclosures so that they reflect actual practice and are consistent across statutory accounts, management reporting and tax computations.

Handled well, tour operator accounting in the UK does more than satisfy regulators. It underpins credible financial information for owners, lenders and partners and gives management a clear view of when profit is actually earned, not just when cash happens to land in the bank.

References

• FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland: https://www.frc.org.uk/document-library

• Revenue: IFRS 15 handbook 2025: https://assets.kpmg.com/content/dam/kpmg/be/pdf/IFRS-15-isg-handbook-revenue-update.pdf

• Package travel – updating the framework 2025: https://www.gov.uk/government/consultations/package-travel-legislation-consultation-on-proposed-amendments/package-travel-updating-the-framework-2025

• Guidance for travel companies and tour operators: https://www.caa.co.uk/atol-protection/trade/

• Tour Operators' Margin Scheme (VAT Notice 709/5): https://www.gov.uk/guidance/tour-operators-margin-scheme-for-vat-notice-7095

• UK GAAP changes to Financial Reporting Standards (FRS) 102: https://www.bdo.co.uk/en-gb/insights/audit-and-assurance/uk-gaap-and-narrative-reporting/uk-gaap-changes-to-financial-reporting-standards-frs-102

Disclaimer:
Content published by Antravia is provided for informational purposes only and reflects research, industry analysis, and our professional perspective. It does not constitute legal, tax, or accounting advice. Regulations vary by jurisdiction, and individual circumstances differ. Readers should seek advice from a qualified professional before making decisions that could affect their business.