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HMRC is reviewing a work from home tax break after officials warned Chancellor Rishi Sunak it had cost the Treasury nearly £500 million during the pandemic.

It has been reported that the Treasury and HMRC plan on changing the eligibility and generosity of a scheme that allows employees to claim up to £125 a year if they work from home.

The tax relief scheme began in 2003 and is designed to help home workers with extra costs related to working from home, including electricity, gas and internet bills.

However, the rules were relaxed at the start of the pandemic, allowing people to claim £6 a week rather than £4 if they worked just one day at home because of COVID-19.

First reported in the Telegraph, an unnamed Treasury source said:

"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 cost the Treasury approximately £2m a year pre-pandemic and £500m across the two years of the pandemic, a significant uptake but a small portion of the COVID response, which totalled over £400 billion.

Individuals can still claim a whole year's rebate if they have worked from home at any point in the 2021/22 or 2020/21 tax year, as per the relaxed rules introduced during the pandemic.

Talk to us about tax relief.