Thousands of families are having child or work tax credits cut because the Inland Revenue says it overpaid them.
Claimants have had their credits cut
The National Association of Citizens' Advice Bureaux has written to the government to protest, and to demand swift action to protect poor families.
It says many families have had benefits reduced by up to a third and such cuts without notice are unreasonable.
The government insists the system is a huge success with six million families benefiting after just nine months.
Charities and advice centres across the UK are being flooded with enquiries from families who have had their credits reduced.
Some have had all their credits withdrawn and many have had payments cut by up to a third.
Although the poorest are entitled to hardship payments, the National Association of Citizens Advice Bureaux says many of them have not been told they need to apply for the extra cash.
Mother-of-three Diane Peckham had her credit of £93 a weekly cut by £25.
She told BBC News: "It's the children who are losing out because we don't have money to pay for activities, extra snacks at the supermarket or luxuries.
"We are back now to the very bare basics."
The Treasury stressed that millions of families were benefiting from tax credits, and the system was flexible.
"Some of these families' circumstances are bound to change through, for example, a pay rise or their children leaving home.
"That is why the tax credit system was designed to be as flexible and responsive as possible - so overpayments occur which are then recovered once the Revenue has been informed of the change," the Treasury said.
It urged people to notify the Inland Revenue of any changes as soon as possible "to prevent overpayments mounting up".
"Where recovering overpayments may cause hardship, additional payments are being made."
The Child Tax Credit and Working Tax Credit were introduced in April 2003.
They replaced the old-style Working Families' Tax Credit and the Disabled Person's Tax Credit.
But their launch was marred by a series of delays and computer problems.
Shadow work and pensions secretary David Willetts said the system was too complicated - and was fundamentally flawed.
"Sadly I don't think they are just teething problems," Mr Willetts told the BBC's Radio 4 Today programme.
"The fundamental question is whether the Inland Revenue with its culture and its way of collecting tax on an annual basis from more affluent people is really capable of delivering social security benefits on a reliable weekly basis to people with very low incomes."
Last month Edward Leigh MP, chairman of the House of Commons public accounts committee, called the launch "disastrous".
Mr Leigh said it had caused "unnecessary suffering to a large number of genuine claimants, many of them vulnerable people in extremely difficult circumstances".
The last three years of the previous system may have seen £2bn - between 10% and 14% - of the old-style credits given out in overpayments.
They were given out in error or as a result of fraudulent claims, such as a claimant failing to declare a partner's income, according to a damming National Audit Office report.
Last month an Inland Revenue spokeswoman told BBC News Online: "The improved controls we have put in place for new tax credits should help to reduce overpayments."