In its 2014 Rebalancing ATOL consultation, the CAA proposed withdrawing the Small Business ATOL scheme but following consideration of the industry responses, it subsequently decided to retain it but instead alter eligibility so as to extend a risk-based approach to all ATOL holders with the introduction of the requirement to meet new ATOL financial criteria. They have now developed a new financial assessment for Small Business ATOLs and standard ATOLs with licensable revenue under £20million.
The financial assessment will look at a range of new financial criteria to measure the strength of a business’ financial resilience and will be introduced on 1 June 2016. Existing ATOL holders will be subject to the new assessment at their first renewal after this date except where there is an application to vary a licence significantly before renewal which may also require the financial assessment to be undertaken. Those ATOL holders with an ATOL limit in excess of £20m will continue to be subject to a more in-depth risk based approach as well as monthly monitoring.
The New CAA Financial Criteria
The extent of the financial assessment will depend on the size and type of licence held or applied for. Businesses will be asked to provide figures from their latest financial statements, which will be used to calculate a number of ratios, as outlined in the CAAs proposed policy on financial criteria. These ratios will then provide the CAA with a score, which will determine whether the business meets the financial criteria. Below is a summary of the new criteria:-
Ratio How is this calculated SBA Standard
Current ratio Current assets/current liabilities Yes Yes
Cash ratio Cash / current liabilities Yes Yes
Leverage ratio Total liabilities/total assets Yes Yes
Return on assets ratio Net profit/total assets Yes Yes
EBITDA margin ratio EBITDA /revenue No Yes
Revenue growth ratio Revenue/Prior year revenue No Yes
Revenue variance ratio Revenue/Projected revenue No Yes
All businesses applying for a new ATOL will be required to have a minimum level of paid up share capital of £30,000 and the minimum bond for new applicants will increase to £50,000 reducing over four years.
The new levels will not apply to existing ATOL holders who are in their first four years of holding a licence, unless they fall within the exceptions outlined in the CAA’s published bonding policy.
Financial assessment will be based on projected financial statements, which will be calibrated and sensitised to ensure that they are reasonable for the business.
However, the good news is that these criteria are likely to impact less on companies that choose to use a CAA approved trust account in place of a bond or insurance policy. Minimum bond requirements are unlikely to apply, and common sense would suggest that the profit, liquidity, cash flow and solvency ratios will take on less importance if all consumer funds are ring fenced in a properly operated trust account.
To explore ways of minimising the impact of these new ATOL financial criteria by using a CAA approved trust account, contact us!