Government guidance on the definition of a package holiday will substantially tighten controls on dynamically packaged sales that do not offer consumer financial protection.

Retailers will have to spell out when holidays lack ATOL or equivalent cover – explaining a client’s money will not be protected in the event of a company collapse and that the firm won’t be liable for accidents.

The guidance – released this week by the Department for Business, Enterprise and Regulatory Reform, formerly the DTI – is likely to end use of the term dynamic packaging for non-ATOL covered sales.

“Use the ‘P’ word and a sale will be a package [in the eyes of the law],” said a source.

The guidance makes clear: “Brochures, websites and sales literature (including invoices) should state clearly whether customers are buying a package holiday, [and] if not, what protections they lack.”

Websites will be expected to give details of cover and liability up front and not buried in terms and conditions.

Firms that try to get around the requirements by making a succession of sales with separate invoices are warned: “If the consumer thinks they have bought a package, it is likely to be a package.”

The guidance points out the law will be strengthened by a European Unfair Commercial Practices Directive that comes into force next April, prohibiting misleading omissions and giving the Office of Fair Trading powers to prosecute.

Several non ATOL-holding companies are expected to apply for ATOLs in light of the guidance, which follows the Court of Appeal judgement in the case between ABTA and the Civil Aviation Authority last October.

The draft guidance is subject to a six-week consultation, which will seek the views of a range of consumer bodies. Final guidance should be published in the autumn.

A spokesman for the CAA’s consumer protection group said: “The CAA hopes the industry will work rapidly with DBERR to agree a final text.”