EDI Services Limited EDI International Limited H & M Services Limited H & M (Uk) Limited v Her Majesty's Revenue & Customs

Facts

The four appellant companies — EDI Services Limited, EDI International Limited, H&M Services Limited and H&M (UK) Limited — were two small computer software groups, each holding company owning the other pair as subsidiaries. Mr Robert Davies and his wife Julia Davies each held 50% of the shares in EDI Services Limited and H&M Services Limited and were the only directors of both; both were directors of EDI International Limited, while only Mr Davies was a director of H&M (UK) Limited. The companies were profitable and much of the profit was distributed as bonuses to Mr and Mrs Davies, previously by transfers of gilts. In September 1994, on advice from Grant Thornton, EDI Services Limited purchased gold French 20F Napoleon coins held in Zurich and transferred them to the directors as bonuses; the directors then instructed the bullion dealer Gold Investments Limited to sell them, the proceeds being remitted to their bank accounts. Bonuses were delivered in the same way by all four companies in November 1995 and February 1996, and by three of them (not EDI International Limited) in November 1996. The Revenue assessed the companies to secondary Class 1 National Insurance contributions on the footing that the transfers were not payments in kind to be disregarded. The appeals, designated the lead case, came before the Special Commissioners.