The measure is expected to help support more than 150,000 businesses through the winter period.
The temporary reduction of VAT rates from 20% to 5% would remain in place until 31 March 2021, rather than 13 January, according to Chancellor Rishi Sunak.
The measure would "help protect 2.4 million jobs through the winter", he said.
The temporary VAT cut first came into force in July and was designed to help hotels, restaurants, cafes and pubs to shore up their finances.
The chancellor expects the extension to the VAT cut would help "support more than 150,000 businesses" through the winter period.
According to the Treasury's Winter Economy Plan, the cut applies to food and non-alcoholic drinks, accommodation and admission to tourist attractions across the UK.
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