A tax break on working from home is set to be scrapped by the chancellor after the cost to the Treasury rocketed during the pandemic to around £500m, according to reports.

Rishi Sunak is said to be planning to close the loophole that allows people to claim up to £125 a year for working even a single day from home.

It comes as a minister told Sky News a rise in National Insurance contributions in April “is going ahead”, with reports Boris Johnson was considering delaying the increase in the face of living costs continuing to go up.

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The work from home relief was introduced in 2003 aimed at helping workers with the extra costs associated with being based at home, including heating, internet and other bills.

However, the cost of the scheme to the public purse has spiralled because of the need for home-working triggered by the COVID-19 crisis.

The bill for the relief has reportedly soared from around £2m a year prior to coronavirus to nearly £500m over the two years of the pandemic.

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According to HM Revenue & Customs, 4.9 million people have successfully claimed the tax break since March 2020.

Demand for the relief is also believed to have been driven by consumer champions, such as MoneySavingExpert.com founder Martin Lewis, who have revealed the existence of the scheme to those who may have previously been unaware of it.

A Treasury source told The Daily Telegraph: “This is a tax relief that existed before COVID and it was there for legitimate reasons but the take-up is now much higher so it needs to be looked at.”

The relief rules were extended at the start of the pandemic to help the millions more employees told to stay away from the office, with the tax-free amount raised from £4 a week to £6.

For basic rate taxpayers, this amounted to £62.40 a year, while higher earners could end up making an annual saving of £124.80.

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Claimants were also told they were eligible for the full tax break even if they only ended up working at home for one day in the year.

In addition, the scheme was also backdated, potentially allowing workers who missed out in the first year of the pandemic to claim a total of £250 for the two years.

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There were 13.4 million people working at home in the week up to January 16, data from the Office for National Statistics has found.

Last week the government lifted the work from home guidance, heralding a return to the office.

The tax break has been criticised by company and hospitality bosses for continuing to encourage home working.

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