Eleven members of a gang have been sentenced by HM Revenue & Customs for setting up 23 fake construction companies to steal £4 million.

The gang used fake directors, invoices and building contracts for housing. People were paid up to £35,000 to act as directors and allow the gang to use their names and addresses to set up the bogus companies, with the sole purpose of claiming illegal VAT refunds.

HMRC officers became suspicious after they carried out checks on a number of companies involved in the building trade across the north west of England. They discovered that many of the companies were linked, regularly providing services to each other and using the same accountant - as well as using the same invoices, receipts and accounts figures to make sizeable claims for VAT refunds.

“We identified suspicious trading by several companies, all of which ultimately led to fraudulent VAT repayment claims,” explained Jo Tyler, assistant director of criminal investigation at HMRC. “The gang ran the fraud from premises in Preston and then filtered the money through company bank accounts, with large sums of cash shared out between those involved or transferred abroad. This was a deliberate attack on the UK VAT system to fund criminal lifestyles.

“Tax fraud and attempts to launder the proceeds of crime are treated extremely seriously by HMRC, and we will relentlessly pursue any individuals or crime gangs believed to be involved.”

Ten of the 13 gang members were jailed at Manchester Crown Court on Friday 31 January 2014 and one was jailed at Manchester Crown Court on 14 February.

Confiscation proceedings are underway for those involved.