A Sussex man claimed his firm was effectively shut down because £730,000 in VAT repayments were withheld during an investigation into "carousel" fraud.
Crawley-based Dave Fisher, who exports computer chips, said he had waited almost five years for HM Revenue and Customs (HMRC) to return his funds.
He also said other legitimate firms were being hit by the time it took HMRC to verify VAT rebate requests.
HMRC said the UK courts consistently supported its verification policy.
Mr Fisher said: "From our small company they've withheld around about £730,000.
"The affect that it has had on my company is that my company ceased to trade because we'd effectively run out of funds."
'Businesses at risk'
Carousel fraud typically involves criminals repeatedly trading goods, such as mobile phones and computer chips, across the borders between EU states - trade which under EU rules is exempt from VAT.
Once the goods are imported, they are then sold on within the UK - but the importer then dodges the VAT it should be paying.
To limit this practice HMRC has a policy called extended verification were it examines in detail VAT rebate requests on items such as computer chips and mobile phones.
In March 2007 a House of Lords committee called on the government to look into how it dealt with VAT fraud on goods imported within the EU because the long waits risked putting some small companies out of business.
A spokesman for HM Reveune and Customs said: "Our legal obligation to maintain customer confidentiality means we are unable to offer comment on the tax affairs of named individuals or organisations under any circumstances."
"The UK courts to date have consistently supported HMRC's policy and practice on verifications, accepting that lengthy verifications are justified given the sums involved, the complexity of carousel supply chains, and the need in many cases to make enquiries of overseas tax authorities."