British businesses are angry over the decision by HM Revenue & Customs (HMRC) to clamp down on VAT fraud.

According to the Federation of Technological Industries (FTI), VAT repayments are being unlawfully withheld for business conducted within the mobile phone and computer component industry, reports the Financial Times.

The body claims that the action is forcing a number of businesses into liquidation and a judicial review is being sought to ensure that VAT repayments are repaid within the usual 30 day period.

At present, the repayments may be withheld for up to a year while verification checks are conducted.

Despite recent successes by HMRC to reduce fraud levels - estimated at between £3.5 billion and £4.75 billion between 2005-06 - Paul Dales from Capital Economics warned that this success could "come back to haunt the chancellor".

With around 100 member firms, the FTI is an organisation built up of traders and associated businesses.