Risk Assessment: ALCO CONTRACTS LIMITED (08558624)

1. Risk Rating: MEDIUM

Justification: The company demonstrates strong balance sheet growth and healthy liquidity, but several concerning anomalies require investigation — most notably a near-tenfold increase in social security/tax creditors, significant trade debtor concentration, and a data gap in financial history that obscures the full trajectory of growth. The construction and real estate sectors in which the company operates carry inherent cyclical and credit risks.

2. Key Concerns

i. Dramatic Increase in Social Security and Other Tax Creditors

Social security and other tax liabilities surged from £38,718 (2024) to £354,161 (2025) — an increase of approximately 815%. This is disproportionate to the modest headcount change (15 to 14 employees) and warrants immediate investigation. Potential explanations range from legitimate timing differences or HMRC payment deferrals to more concerning possibilities such as under-provision in prior years, PAYE/NIC arrears, or Corporation Tax liabilities accruing. This item alone represents 16% of total current liabilities and could signal regulatory or cash management issues.

ii. Trade Debtor Concentration and Recoverability

Trade debtors stand at £2,533,708, representing approximately 54% of total current assets and 75% of net current assets. In the construction installation sector (SIC 43290), debtor recovery is a well-documented risk — retention sums, dispute withholding, and counterparty insolvency can materially impair collection. The slight year-on-year decrease (from £2,553,823) provides limited comfort without visibility of an aged debtor analysis. A significant write-off or provision would materially erode the net asset position.

iii. Data Gap in Financial History (2021–2023)

The financial history provided has a four-year gap between March 2020 and March 2024. Net assets grew from £1,206,208 (2020) to £2,569,502 (2024) — an increase of approximately £1.36 million. Without year-on-year visibility, it is impossible to assess whether this growth was organic and steady, or lumpy and potentially driven by one-off events such as asset revaluations, related-party capital injections, or acquisition of the investment in group undertakings. This gap also prevents assessment of whether any distress occurred during the COVID-19 period.

3. Positive Indicators

i. Strong and Consistent Net Asset Growth

Net assets have grown from £59,975 at incorporation (2014) to £2,847,051 (2025), demonstrating sustained value creation over the company's 12-year life. The year-on-year increase from 2024 to 2025 (£277,549) indicates continued profitability without reliance on share capital injections (which remains at £100).

ii. Healthy Cash and Liquidity Position

Cash at bank stands at £1,416,939 (2025), up from £1,204,542 (2024). Net current assets are £2,493,454, providing a comfortable working capital buffer. The current ratio (current assets ÷ current liabilities) is approximately 2.15x, indicating the company can meet its short-term obligations comfortably. Bank borrowings are modest at £54,000 (current) and £76,500 (long-term), totalling £130,500 — representing less than 3% of total assets.

iii. Filing Compliance and Corporate Stability

Accounts are filed up to date (year ending 31 March 2025, filed 29 October 2025) with no overdue filings. The confirmation statement is current. The company has been active for over 12 years with no indication of insolvency proceedings, director disqualifications, or regulatory enforcement. Three directors and two PSCs provide governance depth appropriate for a company of this size.

4. Due Diligence Notes

Items Requiring Further Investigation:

1. Social Security and Tax Creditor Increase: Request a breakdown of the £354,161 creditor. Determine whether this relates to PAYE/NIC, Corporation Tax, VAT, or other liabilities. Confirm whether any time-to-pay arrangements exist with HMRC and whether penalties or interest are accruing.

2. Trade Debtor Aging and Provisioning: Obtain an aged debtor schedule. Assess concentration risk (are a small number of debtors responsible for the majority of the balance?). Confirm whether retention sums are included and whether any specific debts are disputed or overdue beyond normal terms.

3. Investments in Group Undertakings (£386,185): Identify the underlying entities. Assess whether these investments generate returns, whether intercompany transactions exist, and whether there is any risk of the invested entities experiencing financial difficulty. The disposal of £50 in the year should also be clarified.

4. "Other Debtors" (£716,503): This is a material balance (approximately 15% of total current assets) that is not explained in the filed accounts. Determine whether this relates to intercompany balances, prepayments, or other items, and assess recoverability.

5. "Other Creditors" — Current (£158,889) and Long-Term (£25,930): The nature of these balances is unclear. Request confirmation of whether these are related-party balances, accruals, or obligations that could crystallise into cash outflows.

6. Director Residency and Tax Status: All three directors are South African nationals. Confirm UK tax residency status and whether any directors are non-resident, which could have implications for company tax residence and permanent establishment considerations.

7. Missing Financial Years (2021–2023): Obtain and review accounts for the intervening years to verify the trajectory of growth, assess whether any exceptional items occurred, and confirm no prior-period distress or restructuring.

8. Sector-Specific Risks: The company operates in construction installation and real estate — both sectors facing margin pressure and economic sensitivity. Assess the company's order book, contract pipeline, and exposure to any single client or project.

9. Related Party Transactions: As a small company filing under FRS 102 Section 1A, related party disclosure is limited. Request full details of any transactions between the company, its directors, and the group undertakings in which it holds investments.

10. Deferred Tax Release: The deferred tax provision of £10,342 was fully released in 2025, contributing positively to the profit and loss account. Understand the basis for this release and whether it represents a sustainable benefit or a one-off adjustment.