Thousands of British holidaymakers face losing their longed-for summer breaks – including domestic holidays that were assumed to be a safer option – as the “pingdemic” spreads across the UK.

Around 530,000 people in England and Wales were sent isolation alerts by the NHS Covid-19 tracing app in the first week of July, advising them to self-isolate for up to 10 days. Rates of infection have soared since then, meaning the number of people “pinged” in the run-up to the start of school holidays this weekend will be significantly higher. More than 1 million children in England were out of school for Covid-related reasons in the week of 12-16 July, according to the latest figures from the Department for Education. Analysis carried out by the BBC earlier this month suggested 4.5 million people could be asked to self-isolate by 16 August, after which the fully vaccinated will no longer be asked to isolate.

Many families are now counting down the days, hoping to make it to the end of the week without a positive case in their children’s class, which would force them into self-isolation and put holiday plans in jeopardy. Some parents are reportedly keeping children at home to ping-proof their holidays as cases spread.

Adding to the anxiety is widespread confusion about the implications of a Covid-19 notification. Those contacted by NHS test and trace, or those who test positive, are legally required to self-isolate for 10 full days and cannot go on holiday. However, being “pinged” by the NHS app does not carry a legal obligation and is technically only advisory, though both the government and NHS say people should self-isolate if pinged in order to stop the spread of the virus.

Ministers themselves appear conflicted on this issue. On Tuesday morning Paul Scully, the business minister, said that it was up to individuals to make informed decisions about whether to isolate when pinged by the app. No 10 then moved rapidly to contradict him, saying it was “crucial” to isolate if pinged.

And there is no clarity around whether those unable to travel will be able to get a refund or postponement. Some cottage rental companies will not give last-minute refunds, instead telling customers to rely on their travel insurance.

But many British holidaymakers who booked a domestic break as a safer option than a foreign holiday this summer will not have considered insurance for a UK trip, and many people’s annual policies will have lapsed during the pandemic.

Tommy Lloyd, managing director of insurance comparison website Medical Travel Compared, said: “We have seen an increased number of people taking out travel insurance for their staycation this year but many are still taking a gamble by not being fully protected. If you haven’t taken out adequate travel insurance protection and are forced to cancel your trip due to self-isolation or contracting Covid-19, then sadly you will most likely be left out of pocket.”

The good news is that many cottage companies and UK and overseas tour operators have changed their terms and conditions to allow refunds in the event of being told to self-isolate by NHS test and trace. One of the biggest UK holiday providers, Awaze, whose brands include Cottages.com, Hoseasons and English Country Cottages, is among those from whose customers can claim refunds. But travellers who try to rebook holidays at home for later this summer may struggle to find availability, and will often face haveprice increases for a different week or property.

However, those who cancel because they were pinged by the app, rather than contacted directly by NHS test and trace, may face different rules.

Noel Josephides, director of Aito, the Specialist Travel Association, which has more than 200 travel company members, said that those who cancelled because they were pinged could lose money. “The general feeling is that, because you don’t have to self- isolate by law, there would be full cancellation charges levied if you chose to do so,” he said, “although we are sure that most Aito members would do their best to mitigate any loss on the client’s part.”

He added: “Accommodation and flights are unlikely to be refunded by suppliers as the cancellation would probably be at the last minute, which may take matters out of the tour operators’ hands.” They would have to claim on travel insurance instead.

That raises the prospect of those who act responsibly by isolating being penalised by losing the value of their holiday.

“UK trips unsurprisingly have taken a bigger market share this year but the majority of customers travel with no or only limited cover in place,” said Antony Martin, managing director of Insurefor.com, which offers test and trace insurance among its policies. He said that in the past two weeks the company had seen an increase in people claiming on insurance for UK and foreign holidays cancelled due to the need to self-isolate.

Mike Bevens, managing director of camping specialist Canopy & Stars, said: “To date we have had about 150 bookings affected in July and if the number of self-isolation alerts continues at this pace, we anticipate there are probably more to come. In terms of our owners, they are also being affected, with some being asked to self-isolate themselves and staff shortages.”

The situation is a further blow to the beleaguered travel industry. Many companies that had been looking forward to the easing of travel restrictions now face a fresh wave of cancellations. “As it takes longer to undo a booking than it does to make it in the first place, we are having to operate in a completely insane environment from a commercial perspective,” said George Morgan-Grenville, founder and CEO of tour operator Red Savannah.

He said the company was still getting bookings – and those who were travelling were reporting wonderful, uncrowded experiences – but that “the cancellation and postponements keep rolling in … The constant stop/start and never-ending changes do not represent nimble tactics emanating from intelligent government strategy, but more a chaotic approach underscored by hopelessly poor communications. How can a £238bn industry be expected to mortgage its future to Grant Shapps’s tweets?”

Julia Lo Bue-Said, chief executive of Advantage Travel Partnership, the UK’s largest consortium of independent travel agents, said it would have made sense to bring forward the 16 August deadline, allowing the fully vaccinated to avoid isolation. “If thousands are forced to cancel, this will cause complete disarray for the travel industry,” she said. “The sector has been operating on virtually no income being generated for 18 months now. The operational challenges and logistical fallout that these changes create means that staff cannot be furloughed, refunds need to be processed and customers need to be rebooked – all with limited cashflow coming through the door. For travel agents particularly, many don’t earn any commission until a customer actually travels.”