How to arrange financial protection for package holidays

If you sell travel packages combining two or more elements (such as transport and accommodation), the law requires you to have a specific financial protection scheme in place to refund customers or bring them home if your business ceases to trade. This is a legal obligation under the Package Travel and Linked Travel Arrangements Regulations 2018 (PTRs), and failing to comply is a criminal offence.

Does this apply to you?

You are likely an "organiser" under the law if you sell a combination of at least two of the following for the same trip:

• Transport (e.g., flights, coach, or rail).
• Accommodation (e.g., hotels, villas, or apartments).
• Vehicle rental (e.g., car or motorcycle hire).
• Other tourist services that represent a significant part of the trip (e.g., tour guides, equipment hire, or event tickets).

The Three Main Protection Routes

The UK government allows travel businesses to choose from three primary methods to protect customer money. Each has its own pros and cons depending on your cash flow and business size.

1. Bonding

A bond is a financial guarantee provided by a bank or insurance company. If your business fails, the bond is "called in" to pay for refunds and repatriation. Most businesses do this by joining a trade association like ABTA or ABTOT. These organisations hold the bond on your behalf and provide a recognisable logo that builds trust with customers.

2. Financial Failure Insurance (FFI)

This is a specialist insurance policy where you pay a premium for every booking you take. If your business fails, the insurance provider handles the claims from your customers. This is often the most popular choice for small startups because it doesn't require the large upfront capital or bank guarantees often needed for bonding.

3. Trust Accounts

With a trust account, the customer's money is held by an independent trustee (usually a bank or a lawyer) and cannot be released to your business until the customer has finished their holiday. While this is very safe for the customer, it can be difficult for your cash flow because you cannot use that money to pay your suppliers in advance.

Important: The ATOL Requirement

If your package includes a flight, the rules change. You must obtain an ATOL (Air Travel Organiser’s Licence) from the Civil Aviation Authority (CAA). This is a legal requirement that sits alongside the PTRs. You can apply for a "Small Business ATOL" if you intend to sell fewer than 500 flight-inclusive packages per year.

How to Get Started

1. Audit your packages: Determine exactly what you are selling and if it falls under the PTRs or requires an ATOL.
2. Compare costs: Request quotes for Financial Failure Insurance and check the membership fees for associations like ABTA or ABTOT.
3. Set up your terms: Ensure your booking conditions clearly state which protection scheme you are using. This is a legal disclosure requirement.
4. Maintain records: You must keep meticulous records of all bookings to ensure your protection levels (the amount of money covered) match the amount of money you have actually taken from customers.

Top Tip: If the legal and financial burden seems too high, consider joining a travel franchise or a consortium. These organisations often provide the necessary bonding and ATOL protection as part of their membership, allowing you to focus on selling holidays.