The UK budget deficit – the difference between how much the Government spends and how much it receives in taxes – is expected to be more than £30billion for this financial year. The figure has been falling, but it is still too high for the Government’s liking.
Of course, Chancellor Philip Hammond does not want to increase taxes, but he is keen to collect more of them. One popular way of doing this is by making sure big companies pay the tax they owe.
Tax Systems provides software to help large firms navigate the Government’s increasingly complex demands. The shares are at 85½p and should rise as chief executive Gavin Lyons is driven, able and determined to expand the firm.
Happy returns: The company helps firms submit tax data to the Revenue
Lyons ran cyber-security group Accumuli, which was recommended by Midas in 2013 at 12½p and taken over two years later at 33p.
In 2016, he turned his attention to Tax Systems, then owned by a couple in their 70s, who had put the business up for sale. Backed by supportive investors, Lyons bought the firm and listed it on Aim.
The company was already highly attractive, with about a thousand customers, including more than 100 firms in the FTSE 250 index and all but one of the UK’s top 20 accountancy groups. But turnover had been static for three years and Lyons was keen to grow.
The environment is conducive. In recent years legislation has been introduced to force companies to produce tax filings that are more detailed than ever before. And in April, the Government’s ‘Making Tax Digital’ policy comes on-stream, requiring firms to file VAT returns online in the first instance.
Strategy: Boss Gavin Lyons
Tax Systems helps customers collect the relevant data, ensure they comply with regulations and manage the taxation process so they pay the right amounts at the right time in the right way.
Lyons has also introduced new incentives for Tax Systems’ sales people and strengthened top management, with the appointment of several directors who have worked successfully with him in the past.
Early results of Lyons’ strategy are encouraging. The company said in a trading statement last week, that it expected sales for the first half of 2018 to be 14 per cent ahead of the same period last year and directors were confident about earnings for the full year.
Analysts expect 2018 profits of at least £5.8million, an 18 per cent rise on the year before. There is no dividend, as the firm took on about £30million of debt to pay the former owners for the business. But that has come down to £17.5million and should continue to fall over two to three years, at which point the company may start to pay dividends.
Midas verdict: As anyone paying tax on account this week will testify, the Revenue is increasingly demanding. Tax Systems alleviates the burden and works with some of the UK’s biggest firms and accountants, many of whom have been customers for years. Lyons is a seasoned operator with a history of delivering results. At 85½p, the shares are a buy.