HMRC arrested three men and a woman in a series of raids across London on Wednesday over an alleged £3m VAT fraud.

Around 50 HMRC investigators carried out 10 property searches in the capital as part of their probe and seized £55,000 in cash during the searches.

Penalties of £1,020 were imposed for illegal use of rebated fuel after officers discovered red diesel in the fuel tank of one vehicle and a tank containing 500 litres of red diesel at another raided property.

The four arrested - three men aged 60, 53, and 50, and a 35-year-old woman - have been released on bail until December 2012, on suspicion of fraudulent evasion of VAT and money laundering.

HMRC spokesman Bob Gaiger said: 'Tax fraud is a serious crime and HMRC will not hesitate to investigate those suspected of stealing public funds. Further details cannot be provided at this stage of the investigation as enquiries continue.'