The UK’s Carbon Border Adjustment Mechanism (CBAM) is a regulatory framework introduced to address carbon leakage and encourage lower-carbon global supply chains. In the EU, CBAM is already in effect, while UK CBAM is due to come into effect from 1 January 2027, but what are the differences and which framework applies to your business?
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What is UK CBAM?
The Carbon Border Adjustment Mechanism (CBAM) is an import tax designed to support the UK’s climate goals. In simple terms, it puts a carbon price on certain high-carbon goods being imported into the UK, including Northern Ireland.
Through CBAM, the government hopes to prevent carbon leakage, which is the movement of production and associated emissions from the UK to another country due to different levels of decarbonisation.
How does UK CBAM apply to UK businesses?
UK CBAM applies to certain goods being imported into Great Britain and Northern Ireland. Goods exported to the EU will fall under EU CBAM, which has the same goals, but differs slightly in terms of timelines, requirements, and compliance processes.
Under UK CBAM, the following happens:
- Goods are imported – A business brings goods into the UK
- Emissions are measured – The amount of carbon emitted during the production of those goods is calculated; where no specific figures are provided, a default value is assigned by HMRC
- Carbon price applies – A CBAM charge is based on those emissions and the UK carbon price
- Charge paid to HMRC – The importer submits a CBAM report and pays the charge to HMRC
Unlike with EU CBAM, the UK does not use tradeable CBAM certificates that you buy and surrender. UK CBAM is a tax which requires you to self-assess and pay to HMRC.
If you are the importer of record within the UK, you are responsible for ensuring proper compliance.
UK CBAM only applies to businesses importing £50,000 or more of CBAM goods over a rolling 12-month period.
As the UK importer of record, you will need to:
- Register with HMRC
- Track your imports and their embedded emissions
- File your CBAM return online
- Pay the amount due for the period to HMRC
It’s important to remember that the £50,000 threshold applies to your business as a whole, not to individual shipments, suppliers, carriers or customs agents. If your imports are managed through multiple providers, you’ll need visibility of all CBAM-covered goods entering the UK to accurately monitor when the threshold is reached and ensure compliance.
Businesses with fragmented freight operations may therefore face additional administrative challenges when tracking import values and emissions data across different partners. A more consolidated approach can make monitoring, reporting, and compliance significantly easier.
Are your goods affected by UK CBAM?
UK CBAM applies to five high-carbon industries that are most at risk of carbon leakage:
- Aluminium
- Cement
- Fertiliser
- Hydrogen
- Iron & Steel
Within these industries, CBAM will only apply to specific ‘CBAM goods’. These include both raw and finished goods, identified by commodity codes (also known as HS codes).
At present, imported electricity is not covered by UK CBAM, but it does fall under EU CBAM. Glass & Ceramics is not currently within scope, but may be added at a later date.
What are the differences between UK CBAM and EU CBAM?
Both the EU and UK have Carbon Border Adjustment Mechanism (CBAM) frameworks. Both share a goal of industrial decarbonisation to meet net zero by putting a carbon price on certain goods. Yet though they share this same goal, the two frameworks differ in terms of timelines, requirements, and compliance processes.
UK CBAM
EU CBAM
One further key difference is that UK CBAM will not have a transitional phase. Whereas the European Union ran a report-only transitional phase for over two years, the UK system will go live in 2027 with no transitional period.
How to avoid extra costs?
The UK CBAM cost is calculated through the following formula:
- Embedded emissions x CBAM rate – carbon already paid abroad = what you pay
In terms of embedded emissions, these can be calculated in two ways: default values, or the actual data.
If you don’t have the precise emission figures from your supplier, the embedded emissions cost is based on the default values given by HMRC. This ensures all products can be given a carbon price, even when the specifics are unknown, with no additional verification steps. However, these default figures may be higher than the actual figure, costing your business more.
If you can secure the actual data, you can save your business money by lowering your overall CBAM bill. This requires securing emission figures from your supplier and having them checked by an accredited verifier. Through talking to your supplier and gathering more accurate data, you can lower your overall CBAM cost, making talking to suppliers early one of the most valuable things you can do.
Another way you can help avoid extra costs is to consolidate your supply chain. The £50,000 threshold is based on a company’s overall total. Therefore, if your company involves multiple agents or carriers, you will need to be sure to keep track of the emissions of goods being transported from each individual carrier, in order to keep track of your running total.
It is also possible that suppliers may begin to charge for the additional administrative steps required to generate CBAM reports. If multiple businesses begin to charge for these services, the costs of acquiring your CBAM data could quickly add up. By consolidating your supply chain to instead work with a smaller number of, or single, agent, you can ensure all your reporting comes through one consolidated entity, saving your business both time and money.
Exemptions
There are a few exemptions to UK CBAM, including:
- Goods with the UK as their place of origin
- Goods being imported for non-commercial purposes
- Goods imported under a temporary admission procedure and full relief is given from customs duty
There will also be no CBAM liability for goods where returned goods relief is available.
Goods exported from Northern Ireland into the EU and reimported in the UK will also be exempt for UK CBAM, provided they meet the following requirements:
- The goods are reimported within three years of being exported from Northern Ireland
- The goods are returned in the same state in which they were exported
So long as these requirements are met, the goods will not need to be declared on a CBAM return, nor factored into the calculation for the £50,000 minimum threshold. However, if you are the importer of record, it is important that you keep evidence of these criteria being met so that you can demonstrate compliance.
When is UK CBAM coming into effect?
UK CBAM officially launches on 1 January 2027.
From this date onwards, CBAM will apply to goods being imported into the UK which fall under the scope of UK CBAM, i.e. any business which imports £50,000 or more worth of CBAM goods.
The first CBAM accounting period runs from 1 January 2027 to 31 December 2027. Registration opens on 1 January 2028, and UK CBAM reporting and payment moves to a quarterly cycle, with the first report and payment due by 31 May 2028.
Though this may currently seem far away, by understanding UK CBAM now, you can set your business up for success and avoid last-minute scrambling by the time May 2028 rolls around.
Next steps
To help you futureproof your business, we’ve compiled a list of steps and recommendations to help save you time and money once UK CBAM comes into effect next January.
- Check if your goods are within scope
Compare your commodity codes against the list of commodity codes within scope of UK CBAM. Keep in mind that this list includes both raw and finished goods. - Talk to your suppliers
Talk to your suppliers now to gather accurate emissions data. Without this, emissions will be calculated through default values, which may be higher than the actual data. If you can secure the precise emissions figures from your supplier and have them checked by an accredited verifier, you can save your business money by lowering your overall CBAM bill. - Collate your customs documentation
Start collating your customs documents so that you have all the information you need to complete the CBAM reports. - Consider consolidating your supply chain
Reduce administrative delays and reporting inconsistencies by consolidating your supply chain. By opting to work with a smaller number of, or single, agent, you can ensure all your reporting comes through one consolidated entity. Rather than having to compile reports from multiple brokers, you can request and receive a single report with all the information you need to fulfill UK CBAM reporting requirements.
Taking the complexity out of customs
Our in-house customs team has years of experience in staying up to date on changes to rules and regulations ensuring smooth transits between the UK and EU, and EU and UK. If you need support with customs, we’re here to help.
