Accounting for UK Travel Agents: How to stay compliant and stay Profitable in a Global Market

The UK travel and tourism sector has fully rebounded, with inbound visits reaching 41.2 million in 2024 and forecast to climb to 43.4 million in 2025. International visitors spent £31.5 billion last year, with the figure expected to rise to £33.7 billion this year. Tourism’s total contribution to the UK economy now stands at £286 billion, a 3.9% increase on pre-pandemic levels, underscoring its role as a core driver of national growth. The United States remains the UK’s most valuable inbound market, contributing £6.3 billion in spend from over 5 million visitors.

Outbound travel is also surging. UK residents took close to 90 million trips abroad in 2024, spending £62.7 billion overseas — a figure projected to rise to £69.2 billion in 2025. This appetite for travel is reflected in the strength of the UK travel agency sector, valued at £29.4 billion and home to around 5,000 businesses. Major players like Hays Travel operate nearly 500 retail outlets and report turnover exceeding £457 million, but the market also includes thousands of small and mid-sized agencies competing on service, expertise, and niche offerings.

Consumer behavior continues to favor packaged holidays, with 62% of UK travellers opting for them in 2024. Companies like Jet2 have seen package revenue climb to £7.2 billion, contributing to an 11% year-on-year increase in European package holiday spending, now worth $117 billion. Demand is also shifting seasonally, with shoulder-season bookings up 20% and destinations such as Ibiza experiencing a 30% surge outside traditional summer peaks. These shifts bring both opportunities and challenges for travel agents — from managing supplier relationships and FX exposure to ensuring compliance with complex rules like VAT under the Tour Operators’ Margin Scheme (TOMS) and the use of ATOL trust accounts.

However:

The UK’s travel industry is one of the most heavily regulated in the world. For customers, that means protection and trust. For travel agents, it means a complex financial environment that demands careful accounting, precise compliance, and strong cash-flow planning.

Rules like the Tour Operators’ Margin Scheme (TOMS) for VAT, ATOL trust account requirements, and ABTA’s bonding and financial reporting make UK travel accounting very different from other countries. If you add in the complexity of selling into the United States — with its state-by-state sales tax rules and travel seller regulations — the need for accurate, well-structured financial systems becomes even greater.

At Antravia, we build accounting structures that keep UK travel agents compliant at home and competitive abroad. This guide covers the core rules, common pitfalls, and what UK agents need to know when targeting U.S. customers.

1. Why UK Travel Agent Accounting Is Different

VAT and the Tour Operators’ Margin Scheme (TOMS)

TOMS applies to UK-based businesses that buy in and re-sell travel services as a package — for example, a hotel and a transfer, or a full escorted tour. Unlike standard VAT, which is charged on the full selling price, TOMS VAT is calculated only on the margin (sales price minus direct costs).

This can sound simple, but in practice, it requires precise tracking of direct costs for each booking and careful separation from overheads. Misclassification, for example, including marketing spend as a direct cost, can result in HMRC underpayment claims, penalties, and interest. Overpaying VAT is equally damaging, silently eroding profit margins.

TOMS has no equivalent in the U.S., where sales tax is handled at a state level and is applied differently, making this a uniquely British accounting complexity.

Key challenges for agents:

• Keeping complete cost breakdowns for every TOMS-qualifying booking.

• Understanding which transactions are inside and outside the scheme.

• Ensuring accounting software can handle margin VAT calculations — many generic systems can’t without specialist travel plugins.
  

TOMS applies to UK-based businesses that buy in and re-sell travel services as a package. VAT is calculated on the margin — the selling price minus direct costs — rather than on the full selling price.


Example TOMS calculation:

• Selling price: £4,000

• Direct costs: £2,800 (hotels, transfers, excursions)

• Margin: £1,200

• VAT due at 20%: £240
  

This seems straightforward, but real bookings rarely have neat numbers. Some costs are partly in and partly out of the scheme, such as in-house services or zero-rated transport. Misclassifying these can lead to HMRC underpayment claims or consistent overpayment that quietly erodes margin.

Global perspective:

No equivalent system exists in the U.S. Instead, state sales taxes apply differently, often on specific components such as accommodation or car hire. For UK agents selling into the U.S., understanding both systems is crucial to avoid double-taxing or mispricing.

ATOL and Trust Accounts

The Air Travel Organiser’s Licence (ATOL) protects customers if a travel company fails. Many agents operate through ATOL trust accounts, where client funds are held by an independent trustee until travel has been completed.

While this ensures consumer protection, it creates a major cash flow management challenge. Funds cannot be used to pay suppliers or cover operating expenses until the trip is fulfilled, which can leave agencies cash-poor during peak booking periods.

Some agents turn to supplier credit or short-term financing to bridge the gap, but without careful accounting, this can quickly become a debt spiral.

Cash flow reality:

• January: £300,000 in bookings for summer travel flows into the trust account.

• March: Supplier invoices for flights and hotels totalling £180,000 fall due.

• Trust account cannot release funds until customers return from travel — leaving the agency to fund supplier payments from reserves or short-term borrowing.
  

Without forecasting the timing of trust releases, agencies can find themselves profitable on paper but cash-starved in practice.

Global perspective:
In the U.S., only a handful of states require trust accounts or bonds (e.g., California, Florida). This means many U.S. agencies can use client funds immediately — a significant working capital advantage over UK competitors.

ABTA and Financial Reporting

ABTA membership requires financial stability tests, bonding, and regular financial reporting. Late or inaccurate submissions can lead to penalties or, in severe cases, suspension, which can damage consumer trust and limit trading ability.

ABTA’s rules go beyond accounting compliance; they require additional operational resilience. For example, maintaining adequate working capital is a membership condition. Poor cash flow planning can therefore threaten both operational and membership status.

ABTA membership signals credibility but comes with strict financial oversight. Members must:

• Maintain specific working capital ratios.

• Provide annual audited financial statements.

• Submit management accounts on request.
  
  

Example:
An agency with £500,000 in liabilities and £200,000 in working capital will fail ABTA’s liquidity ratio test, triggering additional scrutiny or potential suspension.

Global perspective:

In the U.S., industry bodies like ASTA have no binding financial requirements, so ABTA’s oversight is a uniquely UK pressure point.

Why this all matters internationally:

If you sell into markets like the U.S., these UK obligations don’t go away — they stack on top of new compliance rules abroad. This means your accounting system must handle multiple, overlapping compliance frameworks without duplication or data loss.

2. Common pitfalls that hurt profitability

1. Misapplying TOMS VAT – Often caused by lumping all costs together instead of separating qualifying and non-qualifying items.

2. Poor gross vs net tracking – Without separating supplier cost from commission income, it’s impossible to see true booking profitability.

3. Trust account cash gaps – Failing to align supplier payment schedules with trust fund releases can force expensive short-term borrowing.

4. FX exposure – Pricing in GBP but paying in USD/EUR without hedging can wipe out margin.

5. Underestimating compliance admin – TOMS VAT returns, ATOL renewals, and ABTA reporting can consume days each month. Without automation, compliance costs are paid in lost sales time.

3. Managing FX in a UK Travel Business

FX exposure is a profit killer if unmanaged.

Scenario:

• Package sale: £4,000 to customer.

• Supplier cost: $4,800.

• Booking rate: £1 = $1.25 → cost £3,840.

• Payment date: £1 = $1.20 → cost £4,000.

• Lost margin: £160 — repeated over 50 bookings, that’s £8,000 in vanished profit.
  
  

Best practice:

• Use forward contracts for high-value or long-lead bookings.

• Match currency inflows and outflows.

• Include an FX buffer in package pricing.
  
  

Global perspective:

U.S. agents selling Europe face the same risk in reverse — they often overpay suppliers when the USD weakens against the euro.

4. Accounting Systems that work for UK Agents

An effective system must:

• Calculate TOMS VAT accurately.

• Track gross/net and commission by booking.

• Handle trust account reconciliation.

• Integrate with booking platforms to reduce manual input errors.
  

Example setup:

• Xero with travel VAT plugins for TOMS.

• Integrated booking system feed for sales and supplier invoices.

• Bank feed split between trust and operating accounts.
  

Risk of the wrong system:
Generic software may miscalculate VAT, fail to reconcile trust accounts, and leave you exposed in an ABTA audit.

5. Selling UK Travel Into the U.S. - A detailed guide

For UK agents targeting U.S. customers, compliance goes beyond sales tax.

Economic nexus:

• Thresholds typically $100,000 in annual sales or 200 transactions per state.

• Triggering nexus requires sales tax registration and remittance in that state.
  
  

Seller of Travel laws:

• California – Registration, annual fee, and trust account/bond requirements.

• Florida – Registration plus a $50,000 bond.
  
  

Which products are taxable:

• In many states, accommodation, car hire, and certain excursions attract tax. Airfare alone is often exempt.

• Multi-component packages may have mixed taxability.
  
  

Example compliance stack:

A UK agent sells $120,000 in California tours and $90,000 in Florida packages in a year.

• Must register and file sales tax returns in both states.

• Must register as a Seller of Travel in California and Florida.

• Must maintain two separate bonds/trust arrangements.

• Total compliance cost could exceed $7,000 annually, excluding admin time.
  
  

FX and pricing:

Pricing in USD improves conversion but exposes you to GBP cost volatility unless hedged.

Banking:

A U.S. bank account can reduce FX costs but may trigger IRS filings (W-8BEN-E) and entity registration.

6. Scaling beyond the UK

When expanding into new markets:

1. Monitor client locations quarterly to identify emerging nexus triggers.

2. Consider forming local entities in high-value markets for payment control and tax efficiency.

3. Maintain segmented P&L by market for compliance and strategic decision-making.
   

Antravia Conclusion

UK travel accounting is already complex. Add U.S. sales into the mix, and the margin between profit and loss can shrink quickly without precise, proactive accounting.

From TOMS VAT to state-by-state sales tax, every compliance obligation has a financial impact. The agencies that win internationally are the ones with financial systems built to handle both.

At Antravia, we design accounting structures that protect UK agents’ margins while opening the door to global growth.

📩 Contact us at www.antravia.com to put the right system in place.


References:

1. UK Government – Tour Operators’ Margin Scheme VAT Notice 709/5: https://www.gov.uk/guidance/tour-operators-margin-scheme-for-vat-notice-7095

2. ABTA – Financial Protection and Bonding Rules: https://www.abta.com/industry-zone/financial-protection

3. Civil Aviation Authority – ATOL Guidance: https://www.caa.co.uk/atol-protection/

4. California Seller of Travel Program: https://oag.ca.gov/travel

5. Florida Department of Agriculture and Consumer Services – Seller of Travel: https://www.fdacs.gov/Business-Services/Sellers-of-Travel

6. Avalara – Economic Nexus Explained: https://www.avalara.com/us/en/learn/guides/what-is-economic-nexus.html

7. UK inbound tourism statistics – visits and spending forecasts
   UK Parliament, House of Commons Library – Tourism: statistics and policy
   https://commonslibrary.parliament.uk/research-briefings/sn06022/

8. Inbound visits and economic contribution of tourism
   Financial Times – UK tourism recovery and spending trends
   https://www.ft.com/content/a8756717-82fe-4d54-867d-08cf326387cb

9. Inbound and outbound tourism spending, market recovery
   FreeTour.com – UK Outbound and Inbound Tourism Statistics Report
   https://www.freetour.com/blog/uk-outbound-and-inbound-tourism-statistics-report

10. Tourism GDP contribution increase
    The Guardian – Travel body accuses government of sabotaging UK tourism industry
    https://www.theguardian.com/business/2025/apr/22/travel-body-accuses-government-of-sabotaging-uk-tourism-industry

11. U.S. visitor spending and volumes
    Wikipedia – Economy of the United Kingdom (Tourism section)
    https://en.wikipedia.org/wiki/Economy_of_the_United_Kingdom

12. UK travel agency market size and business numbers
    Condor Ferries – Travel Agency Statistics
    https://www.condorferries.co.uk/travel-agency-statistics

13. Hays Travel turnover and retail footprint
    Financial Times – UK tourism recovery and spending trends
    https://www.ft.com/content/a8756717-82fe-4d54-867d-08cf326387cb

14. Package holiday market share and Jet2 revenues
    The Times – Wish you were here: package holidays still Britain’s best breaks
    https://www.thetimes.co.uk/article/wish-you-were-here-package-holidays-still-britains-best-breaks-rmvwg8lhx

15. European package holiday spending growth
    Reuters – Package deals make comeback as sun-seekers count cost
    https://www.reuters.com/markets/europe/package-deals-make-comeback-sun-seekers-count-cost-2024-08-19/

16. Shoulder season and destination demand shifts
    Financial Times – Travel trends and seasonal booking patterns
    https://www.ft.com/content/d8650eda-4e50-4843-b240-bdd8a9afab1f