Live Aid is to get all the VAT money paid on sales of its new DVD and the new version of the 1984 hit Do They Know It's Christmas?
Bob Geldof called Gordon Brown's decision 'remarkable'
The decision by Chancellor Gordon Brown could hand the charity more than £4m.
Mr Brown said Band Aid's impact had been huge and he wanted to do all he could to help its latest project.
Live Aid founder Bob Geldof called the decision a "remarkable gesture" which would help alleviate the misery of the hungry in Africa.
The possible £4m price tag on the VAT refunds are based on the DVD, which is released on Monday, selling 500,000 copies and 1m copies of the new CD.
The new Band Aid 3 version of Do They Know It's Christmas, which comes out next month, features artists such as Sir Paul McCartney, Chris Martin from Coldplay, Robbie Williams, Dido and Ms Dynamite.
Next month marks the 20th anniversary of the Band Aid single
Midge Ure, who masterminded the Do They Know It's Christmas? record in 1984, said: "It's a sad indictment that it's taken 20 years for this to happen again.
"It's 20 years next year since the event, and it's still the biggest concert.
"Nobody has bettered it."
The Conservative government in 1985 gave a donation to charities working in Ethiopia and Chad equivalent to the VAT collected on sales of the original 1984 Band Aid record.
Announcing a repeat of the exercise, Mr Brown said: "Ever since its launch 20 years ago, Band Aid has had a huge impact, raising the plight of the world's poorest and raising funds to help them.
"More than that, Band Aid has won millions to the cause of fighting global poverty.
"I want to do everything I can to support their work and so people can buy the DVD and record this Christmas knowing that all the money they spend will go to support the vital work of the Band Aid Trust in the poorest countries of Africa."
Mr Geldof said Mr Brown had telephoned him while he was in Africa.
"I just came back from Africa. I was with child witches in the Congo two days ago, and the telephone rang, and it was Gordon Brown," he said on Sunday at the launch of the DVD.
"He said to me: 'Ah, Bob, hello, what about the VAT on the record?' I said:'Yeah, I hadn't thought about that. I forgot all that stuff.'
"But they hadn't, because Gordon Brown and Tony Blair are the same sort of generation, so they're my age, and so I just had tea with them, as you do on a Sunday afternoon.
"It's £8 million saved on VAT. That's a serious wedge, and shows a political climate change," he added.