Two Essex businessmen who evaded £2.5m in Corporation Tax and VAT in a fraud linked to the supply of labour to the rail construction industry have been jailed for 10 years.

For seven years Michael Woodward, from Grays, Essex, failed to pay business taxes for the companies he ran.

He lied about his company profits and created false invoices from bogus consultancy firms, controlled by his best friend and co-defendant Richard Ponsford from Ongar, Essex.

Paul Barton, Assistant Director, Criminal Investigation, HMRC, said: “Woodward and Ponsford thought they had created the perfect crime, stealing millions from law-abiding taxpayers.

“They thought their criminal actions would go undetected but they were wrong. They have lost their freedom which has been traded instead for time behind bars.

“We will now seek confiscation orders to recoup the money they stole for the country’s public services.”

The men under-declared their profits to reduce the Corporation Tax due and used fake consultancy invoices to reduce their VAT payments by £2.5m.

The money was transferred to four consultancy firms controlled exclusively by Ponsford.

Between 2004 and 2011 he made 387 cash withdrawals which the men used to supplement the wages of employees and family members.

The fraud was stopped in its tracks when they were arrested in March 2011 and HMRC officers searched residential and business premises in Essex.

The only business records found for the seemingly successful companies controlled by Ponsford were handwritten notes indicating the cash he withdrew was returned to Woodward.

In a three-week trial at Southwark Crown Court the defendants were found guilty of Cheating the Public Revenue.