The scheme replaced Family Credit in October 1999.
The report included the case of a man with three children who was sacked as a trainee kitchen assistant when he was awarded a £100-a-week tax credit on top of his wages.
Another, an owner of a bar, said he "could not cope with the hassle".
One woman was demoted from supervisor to waitress and had her hours slashed.
The British Hospitality Association said it was not surprised people were having trouble with it. Even its deputy chief executive, Martin Couchman, did not understand how it worked.