Time to plan for October Atol refresh

17 May 2017

The CAA released its decision on consultation proposals on rebalancing Atol in March 2015 and the changes proposed take effect from October 2015 onwards. There are a wide range of measures outlined and I will be looking at these over the next few blog posts.

The financial compliance changes proposed largely gained attention through the key proposition to abolish the Small Business Atol (SBA) holder status, which received the most resistance and resulted in this aspect being withdrawn. However, it should be noted that there are other fundamental adjustments that will significantly affect both SBAs and full Atol holders with licensable revenue of under £5 million per annum and these are looked at in detail below:

New Applicants (from October 1, 2015):

  • Bonding for first four years with level initially set at 15% of licensable revenue reducing by 2.5% per annum if business is fully compliant with minimum of £50,000 of initial bonding
  • Maximum licensing authorisation level for SBAs of £1,000,000 and 500 passengers
  • Solvency test for SBAs
  • Groups will be assessed still on consolidated financial reporting by UK parent company
  • Paid up Ordinary Share Capital to be equal to or above £30,000
  • Financial statements with positive liquidity, net equity and profitability
  • Two Year Business Plan including profit and loss, balance sheet and cash flow projections

Existing Atol holders (from next renewal after October 1, 2015):

  • Bonding may still not be required if fully financially compliant
  • Minimum bonding level of £50,000 if fail to satisfy financial resilience indicators or other Atol compliance requirements
  • Solvency test for SBAs
  • Maximum licensable revenue level for SBAs of £1,000,000 and 500 passengers
  • Paid up Ordinary Share Capital for standard Atol holders to be equal to or above £30,000 but no minimum for existing compliant SBAs
  • Key financial data extracted from financial statements for standard Atol holders with assurance report thereon to assess financial resilience against chosen ratios
  • Annual Accountants Reports to be validated by Atol Reporting Accountant from April 1, 2016

As an existing or aspiring Atol holder you should consider taking all or some of the following steps to prepare yourself for the tighter financial compliance requirements. These actions will strengthen your financial position and result in healthier resilience indicators being recorded based on your next reported financial statements:

Liquidity

  • Seek additional new cash into the business via long-term loans or capital raising
  • Tighten cash flow management and preserve greater cash levels in the business through reducing drawings by dividends or remuneration to the owners
  • Improve credit control measures to convert debtors into cash earlier
  • Negotiate extended creditor settlement terms to smooth cashflows

Net equity

  • Introduce new capital by fresh share issues
  • Retain greater levels of trading profits within the business

Profitability

  • Maximise margin management to enhance gross profitability
  • Cut back on administrative and operational indirect costs
  • Drive greater sales volumes and values through marketing focus
  • Restrict owners discretionary drawings through remuneration, benefits or allowances

For smaller Atol holders including those currently with SBAs it may still be worth considering either looking at membership of one of the eight Accredited Bodies or a franchise arrangement via TTA. These options are, however, likely to require significant new cash from additional shareholder capital or bank development loans being introduced. This will enable compliance with the trust account systems predominantly used by these bodies that largely release funds upon protected holidays being taken.

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