The apprenticeship levy introduced in England last year is "causing confusion and frustration" according to the British Chambers of Commerce (BCC).
Jane Gratton, BCC's head of skills, told a conference on apprenticeships in London today about the need for reform of the levy if it is to be workable for business.
"Businesses recognise that apprenticeships are a crucial tool in shaping the skills of tomorrow, but the current restrictions and inflexibility of the system make it unfit for purpose," she said.
"For many levy payers it feels like a tax, or redirects funds set aside for other forms of workplace training. At the other end of the spectrum, the funding rules mean that SMEs are facing higher recruitment costs, and are unsure how and where to access quality training providers."
According to statistics from the Department of Education, the number of apprenticeship starts since the introduction of the levy in April 2017, has plummeted.
The latest figures reveal a 25% drop compared to the same time last year.
Gratton described the aim of the levy as laudable, but said its structure and implementation are obstacles to training the talent of tomorrow.
"The government needs to urgently engage with business and training providers to make it work for everyone.
"More support for SMEs accessing apprenticeship funding, more time for firms to source apprenticeship training and allowing more Levy funding to be passed down the supply chain, are all steps in the right direction that could be easily and promptly implemented," she said.
"Once the necessary reforms are made, a period of stability in the UK's training system is needed to give businesses the certainty and confidence to engage and invest in the long-term."
Last week public services think-tank Reform published a report called The Great Training Robbery: assessing the first year of the apprenticeship levy, which found that apprenticeships have become too complicated and focus on inappropriate training.