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Understanding what the UK CBAM means for your business

The UK Carbon Border Adjustment Mechanism (CBAM) is coming—what is it, which sectors are impacted, and what steps must you take to be compliant?

Starting from 1 January 2027, the United Kingdom is introducing a Carbon Border Adjustment Mechanism (CBAM) to advance its climate agenda. Mirroring the now-operational EU CBAM, this levy on carbon-intensive imports such as aluminium, fertiliser, and hydrogen forms a key part of the British government’s strategy to reach net-zero emissions by 2050 and tackle the challenge of carbon leakage.

This is not the country’s first step in addressing carbon emissions as the government has already put in place measures such as the UK Emissions Trading Scheme (UK ETS), which encourages businesses to decarbonise by attaching a cost to carbon output. However, imported goods are not covered by the UK ETS, creating inconsistencies in carbon pricing across the market.

The UK CBAM is designed to close this gap by placing a levy on carbon-intensive imports—including aluminium, cement, fertilisers, hydrogen, iron and steel—so that they face a carbon cost comparable to domestic production under the UK ETS. In doing so, the government aims to ensure that decarbonisation delivers a genuine reduction in global emissions, rather than shifting them abroad, while also maintaining a level playing field for UK businesses.

What’s impacted by the UK CBAM?

The UK CBAM targets high-emission sectors which are: aluminium, cement, fertilisers, hydrogen, iron and steel—at risk of carbon leakage. However, the scope of the levy will vary according to products and will change over time.

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Here’s a more detailed rundown of the policy’s remit:

  • Within each sector, the levy will apply only to specific imported ‘CBAM goods’. These are determined at the product level and are identified by commodity codes listed in Annex B (page 57 to 60) of the ‘Government Response to the introduction of a UK CBAM Consultation’.

  • The UK CBAM will apply to both direct and indirect emissions of imported CBAM goods, including those of relevant precursor goods further up the value chain.

  • CBAM won’t apply to imports valued at less than £50,000 over a 12-month period.

The sectoral and product level scope of the CBAM will be kept under review beyond 2027 as new evidence comes to reflect changes to carbon leakage risk as well as methodological and technological advances.

What must importers do?

Importers of in-scope goods will need to register with HMRC, report embedded emissions using verified data or government-published default values and submit tax returns. Payments will first be annual, with the 2027 accounting period due by May 2028, before shifting to quarterly from 2028 onwards.

Who’ll be liable for the charge?

The liable person for the UK CBAM charge will either be the person responsible for the goods when they are released into free circulation if there are customs controls, or the person on whose behalf the goods are moved into the UK if there are no customs controls.

What are the penalties for non-compliance?

Penalties for non-compliance will be strict, ranging from fines to new criminal offences for fraud or misreporting.

The existing powers of His Majesty’s Revenue and Customs (HMRC) are to cover CBAM, with penalties applicable, amongst other things, for:

  • Failing to register for CBAM

  • Failing to pay CBAM liabilities

  • Failure to submit returns or making errors in returns

  • Failure to keep relevant records

The draft legislation introduces a new criminal offence of fraudulent evasion of CBAM, in addition to new criminal offences in relation to misstatement in relation to CBAM, including producing, providing or making use of false documents with intent to deceive or knowingly or recklessly making false statements.

New measures are also being introduced to prevent artificial separation of business activities to circumvent CBAM. In addition, CBAM is added to the list of taxes covered by the indirect tax disclosure rules (DASVOIT), which could give rise to an obligation to disclose schemes designed to avoid CBAM.

How should importers prepare?

You should start by identifying which imported goods fall under the in-scope sectors and come from countries without similar carbon pricing. This means looking across the supply chain to trace where products originate and assessing how carbon-intensive they are.

You'll need to access accurate data on the carbon emissions of your imported goods. This may require working with overseas suppliers to obtain verified emissions data or preparing to use default values if such data is unavailable.

The UK CBAM will add a new cost to your imports. You should model how this could affect your import expenses and consider the impact on your pricing strategy, profitability, and competitiveness.

Depending on the impact, you may need to adjust your strategy—for example, by sourcing from countries with lower carbon footprints or similar carbon pricing, or by encouraging your suppliers to invest in decarbonisation technologies.

The implementation design of the UK CBAM is still evolving. You should stay updated through UK government, HMRC, and UK ETS Authority announcements, and take part in consultations where possible.

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How can our expert team support you?

CBAM compliance is complex—but you’re not alone. Our experts are already helping EU companies meet their obligations with all-in-one CBAM solutions— we’re ready to guide your business’ transition under the framework of UK CBAM.

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Timeline

Key milestones for implementing UK CBAM

March-June 2003: groundwork

The UK government runs its initial consultation addressing potential measures to tackle carbon leakage risk. The covered possible policies include the CBAM design.

December 2003: official announcement

The government announces a UK CBAM will be introduced from 1 January 2027, broadly mirroring the EU CBAM framework.

March-June 2004: design consultation

The government issues a 12-week policy consultation focused on the CBAM’s design and administration—including scope (aluminium, cement, ceramics, fertilisers, glass, hydrogen, iron & steel), calculation method (Scopes 1, 2, precursor linked emissions), default vs actual emissions, rates, and alignment with UK ETS. The consultation receives over 340 stakeholder responses.

April-July 2005: technical consultation on drafting legislation

HMRC and HM Treasury release the primary draft legislation for UK CBAM. Consultation materials (draft clauses, explanatory notes, tax impact assessments) are made available, inviting stakeholders to issue their responses by 11:59 p.m. on 3 July 2025.

Up to 2027: industry readiness and roll-out period

Focus on technical preparations, system testing, guidance development, and industry readiness planning.

1 January 2027: UK CBAM enters effect

Importers of goods in scope must account for embodied emissions and pay the carbon price differential relative to UK ETS price.

2028: reporting and payment schedule

First accounting period: 1 January 2027-31 Dec 2027. Payment and return due by 31 May 2028.

From 2028 onwards

Quarterly reporting, with payment due two months after each quarter.

The UK CBAM is a significant shift in international trade and environmental policy. By grasping its scope, mechanics, and taking proactive steps, your business can navigate it effectively and contribute to the UK's ambitious decarbonisation agenda.

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