FRS 102: The revenue recognition headache you didn’t ask for

Pru Goudie
Dec 4, 2025
4 min read

By Travel Trade Consultancy (TTC)

A holiday can mean many things. For some, it’s a long-awaited escape to a sunny beach. For others, it’s hiking boots, mountain views, and a sense of adventure.

But behind every holiday sits a web of bookings, contracts and of course, accounting entries. Selling travel isn’t straightforward. There are agents, operators, airlines, hotels, DMCs, and payment platforms to wrangle. Add in the fact that a customer might book today for a trip that won’t happen for 18 months, and you’ve got plenty of opportunities for an accounting migraine.

Step one: diagnose the problem

The latest FRS 102 update is designed to make UK financial reporting more consistent with international standards, particularly IFRS 15 (Revenue from Contracts with Customers).

The changes take effect for accounting periods starting on or after 1 January 2026 (though you can adopt them early if you’re feeling brave).

At its heart is a five-step model for recognising revenue. It sounds clinical but once you break it down, it’s really about aligning income with the point at which you’ve actually delivered something.

And now, thanks to the latest FRS 102 triennial review, travel businesses have a fresh cause for concern: a brand-new model for recognising revenue.

Let’s unwrap what’s changing, why it matters, and how to avoid reaching for the paracetamol.

The five steps are:

Identify the contract with the customer
Identify the performance obligations
Determine the transaction price
Allocate the price across obligations
Recognise revenue as those obligations are satisfied

It’s tidy in theory. In practice? Bring on the aspirin.

Tour operators: the full-blown migraine

If you’re a tour operator, you’ll probably feel this change most acutely.

Under the old approach, many operators recognised the whole value of a trip when the customer departed. From 2026, that’s no longer acceptable.

You’ll need to break down each holiday into its component parts: flights, hotels, transfers, excursions and recognise revenue as each element is delivered.

Take a 10-day package holiday as an example:

Outbound flight: day 1
Hotel stay: days 1–3
Cruise: days 4–10
Return flight: day 10

Each of those becomes its own performance obligation. Revenue must be allocated across them and recognised as you go.

It’s more accurate, yes. But you’ll need good systems, strong controls, and probably a lie down in a dark room after your first year-end.

Agents and booking platforms: mild to moderate pain

If you’re an agent or a booking platform, things are simpler, though still worth a couple of ibuprofen.

You’ll continue to recognise only your commission income, not the full customer payment. But now you’ll also need to apply the five-step model. In most cases, that means recognising revenue once your service is complete and non-refundable.

For example, if you take payment on behalf of a hotel:

The hotel portion is a liability, not your revenue.
Your commission is deferred and can only be recognised when it’s earned. Not before.

It’s a subtle shift in wording, but a big one in practice. Timing matters more than ever, and the audit trail needs to be watertight.

Other income: the cluster headache

Vouchers and loyalty points

Vouchers and loyalty points now come with their own rules. They’re treated as separate obligations, so a slice of your transaction price must be held back until the voucher is used, or until it’s highly probable it won’t be.

Cancellations

Likewise, cancellation fees can’t automatically be booked as revenue the moment a customer backs out. You can only take them to income once you’ve got no further obligations. In other words, once your part of the deal is truly over.

It’s a longer, slower burn for revenue, but one that gives a truer picture of performance.

It’s all about control and completion. Not cash in hand.

The prescription: what you can do now

Here’s how to get ahead of the pain in three simple steps:

1. Get your house in order with internal readiness

Review your contracts: Work out who controls what, and when. The principal/agent assessment sets the foundation for everything else.
Update your systems: Ensure your accounting software can track multiple performance obligations and allocate revenue accurately.
Train your finance team: Make sure everyone understands the new timing rules. The smoother the internal process, the fewer late-night migraines at year-end.
Plan your transition early: With retrospective application where possible, the sooner you prepare, the less painful implementation will be.

2. Protect your compliance position

Check your bank covenants: Increases in deferred income can impact net-worth calculations, debt-to-equity ratios and current ratios. Identify risks before they bite.
Review your regulatory ratios: Understand how the new model affects CAA ratios, IATA financial assessments, and the ABTA net adjusted current assets test. Any deterioration could trigger tighter restrictions or higher financial guarantees.
Tighten your turnover reconciliations: Expect more scrutiny between licensable and non-licensable turnover and the figures in your statutory accounts. Clean reconciliations = fewer compliance headaches.

3. Talk to the outside world

Engage your stakeholders: Bring auditors, lenders, investors and regulators into the conversation now. Revenue timing changes will ripple through key metrics, disclosures and covenant reporting.

Yes, the 2024 FRS 102 update adds complexity. But it also adds clarity.

Ultimately, the new model brings UK GAAP closer to IFRS 15 and gives a more accurate reflection of when value is truly delivered. It might sting at first, but in the long run, it’s good medicine for your accounts.

As with any accounting ailment, the best remedy is preparation!