The first prosecution involving the Offshore Disclosure Facility - launched by HMRC in 2007 - has seen two British businessmen jailed for tax evasion and fraud.

Roderick Smith (44) of Wigan, and his business partner Stephen Howarth (44) of Cheshire, lied about cash they had hidden in offshore bank accounts.

Smith told HMRC that he had one offshore account when he was given the chance to come clean in an offshore disclosure campaign. He failed to mention 11 other accounts.

Howarth also failed to take the chance to disclose any of his accounts in the campaign.

Smith was charged with four counts of fraud - three related to Cheating the Public Revenue contrary to Common Law. He was also charged with one count of fraud by false representation, which relates to Smith's participation in the HMRC Offshore Disclosure Facility. Smith failed to make a full disclosure in an attempt to disguise his criminal activities, listing only one bank account in the Isle of Man when he had several others. He knew that HMRC was aware of the account he had declared.

Howarth was charged with two counts of cheating the Public Revenue contrary to Common Law. He pleaded guilty to one of the counts and was sentenced to 12 months' jail at Liverpool Crown Court.

The two men ran a company offering computer technology expertise to the car trade, with many customers based in Germany. But the pair did not registered their true level of sales with HMRC and instead put their profits in bank accounts in the Isle of Man. Alerted by the German tax authorities, HMRC investigators discovered that, over a six-year period, the men evaded around £500,000 in UK income tax.

Mike Preston, HMRC assistant director, Criminal Investigation, said: 'Smith and Howarth stole from UK taxpayers, using the money that should have paid for public services to fund luxury lifestyles filled with prestige cars and expensive holidays.

'By failing to declare the true level of sales in Europe, and pay tax due on these earnings, they must now face the consequences of their actions in jail. HMRC is clamping down on tax evasion and targeting UK taxpayers using offshore accounts to disguise their wealth. I urge anyone with information about suspected tax fraud to call the HMRC Tax Evasion Hotline on 0800 788 887.'

HMRC investigators identified sales totalling £1,255,615 in Germany, while the company the pair ran in Manchester, Goldlogic Control Systems Ltd, declared only £49,650 of this money in sales for the same period. The balance was siphoned off into the offshore accounts of five shell companies registered in Mauritius and the Isle of Man, created by the directors solely for the purpose of tax fraud.

Both men had the opportunity to disclose their offshore accounts through HMRC's Offshore Disclosure Facility (ODF) in 2007. Howarth did not register for the OFD, while Smith did register but then disclosed only one of the 12 accounts he controlled overseas. Smith's actions were compounded by also lying to his accountant.

In court, Judge Warnock told both fraudsters: 'Only sentences of imprisonment are appropriate... To suspend these sentences would offend any reasonable sense of justice on the part of the honest taxpayer.'

Smith was jailed for 15 months and Howarth for 12 months. Confiscation orders were issued under Proceeds of Crime legislation in respect of Smith for £300,000 and Howarth for £200,000. They must pay within 24 months or face imprisonment for a further 15 and 12 months respectively. Both men must pay £5,000 court costs. Smith has already paid £40,000 under the OFD scheme.

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