Chancellor Rishi Sunak has extended the furlough scheme for one month until the end of April next year.
He said the move would provide “certainty for millions of jobs and businesses”.
It means the government will continue to pay 80% of the wages of workers who have been furloughed.
Mr Sunak also confirmed he would be extending the government-guaranteed Covid-19 business loan schemes until the end of March.
These changes come in the run-up to the next Budget, which the chancellor confirmed would take place on 3 March 2021.
“Our package of support for businesses and workers continues to be one of the most generous and effective in the world – helping our economy to recover and protecting livelihoods across the country,” Mr Sunak said.
“We know the premium businesses place on certainty, so it is right that we enable them to plan ahead regardless of the path the virus takes, which is why we’re providing certainty and clarity by extending this support.”
The government will continue to pay 80% of the salary of employees for hours not worked until the end of April.
Employers will only be required to pay the wages, National Insurance (NI) contributions and pensions for hours worked, as well as NI contributions and pensions for hours not worked.
The eligibility criteria for the UK-wide scheme will remain unchanged and these changes will continue to apply to all devolved administrations, the government said.
Businesses will also have until the end of March to access the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, and the Coronavirus Large Business Interruption Loan Scheme.
These had been due to close at the end of January.