UK CBAM: the carbon border tax, instrument by instrument

CBAM stands for carbon border adjustment mechanism.

A UK steelworks, cement kiln or fertiliser plant pays for its emissions through the UK Emissions Trading Scheme, which puts a price on the emissions of UK installations.

A producer of the same goods in a country with no carbon price pays nothing equivalent, so on price alone the import wins.

That gap is called carbon leakage: production and its emissions move to wherever carbon is cheapest, and a country’s emissions fall on paper while the world’s do not.

A border adjustment closes it from the importing side, by charging the import for the emissions embodied in it at a rate tied to the domestic carbon price.

The charge is reduced where the producer has already paid a carbon price at home, and that reduction is what separates CBAM from an ordinary tariff.

HMRC’s policy summary gives the purpose as ensuring that highly traded, carbon intensive products from outside the UK face a comparable carbon price to that paid by UK manufacturers, so that UK decarbonisation leads to a true reduction in global emissions rather than displacing them overseas.

Two features surprise first-time readers: the importer pays, not the foreign factory, and the tax starts with five heavy materials rather than finished products.

There are also two CBAMs to keep apart: the EU’s, in its definitive phase since 1 January 2026, and the UK’s, a separate tax from 1 January 2027.

Yes: section 158(1) of the Finance Act 2026 gives the tax effect for goods imported into the United Kingdom on or after 1 January 2027.

It reaches the whole UK, Northern Ireland included, and goods entering from the Crown Dependencies including the Isle of Man, the Overseas Territories and the UK Continental Shelf.

Whether it reaches your business turns on three facts, and turnover is not one of them.

First, the goods: is each one within a commodity code in Schedule 16?

Second, your role: are you the importer, meaning, in HMRC’s words, the person named on the import declaration even if someone else declares the goods for you?

Third, the value: do your CBAM goods reach £50,000 on either of the two tests?

Freight forwarders, customs brokers, hauliers and express operators can act for you, and none of them takes the liability away.

Section 147(1) takes goods out of charge where the importer is, at the time of import, neither registrable nor registered, or imports otherwise than in the course of a business.

Section 147(2) takes out goods of UK origin under the non-preferential rules of origin.

A UK exporter selling into the EU is outside the UK charge altogether, because section 143(1) charges goods imported into the UK; that sale sits with the EU mechanism, covered further down.

Paragraph 2(2) of Schedule 17 sets two tests, and either one triggers registration.

The backward test: on the first day of a month, the person imported CBAM goods with an aggregate value of £50,000 or more in the preceding 12 months in the course of a business.

The forward test: the person is expected to import £50,000 or more of CBAM goods in the course of a business before the end of a period of 30 days.

Both say “or more”, so exactly £50,000 is enough.

The value counted is the value of the goods, not turnover and not weight, and all CBAM goods count together whatever their sector.

For the first year, HMRC’s guidance says not to include CBAM goods imported before 1 January 2027.

Its own forward-test example has goods worth £60,000 expected on 14 January 2027 making the importer liable to register on 1 January 2027, before anything has landed.

The policy summary lists what does not count: goods exported before the tax point, goods qualifying for returned goods relief, and, under outward processing, all but the difference in value; goods under a special customs procedure count at the value of their CBAM portion.

The figure was £10,000 in the 2024 consultation and was raised to £50,000 in the government response.

The checker’s default figures are a distributor importing fasteners in four shipments of £14,000, £9,500, £12,000 and £16,500 through 2027: no single shipment comes near the line, but the look-back on 1 August 2027 finds £52,000.

HMRC’s guidance speaks of liability from the date imports met the threshold — 20 July in that example — while the statute tests on the first of the month, and because section 147(1)(a) charges nothing while an importer is neither registrable nor registered, the choice of date decides whether the 20 July shipment is taxed: record both dates and put the point to HMRC.

The liability is two multiplications and one subtraction.

Embodied emissions are multiplied by the CBAM rate to give the charge, and Carbon Price Relief, where it applies, is subtracted to give the liability.

Emissions come from one of two places: a default value set by the Treasury, or actual verified data from the installation that made the good.

Only direct emissions are in scope at commencement.

The 2024 response said the government intended to cover indirect emissions; the tax information and impact note records that Budget 2025 excluded them at implementation.

Nothing about the arithmetic is hard; everything hard is inside the three inputs, and two of them are not yet published.

The default route is the simplest: regulation 4 of S.I. 2026/995 makes the embodied emissions the weight of the good multiplied by the default value.

A default value is the amount of carbon dioxide equivalent specified for a tonne of the good in a Treasury notice under paragraph 11(1) of Schedule 17.

The actual route is regulation 5’s eight steps: identify the monitoring period; take the installation’s verified emissions for that type of good; convert non-CO₂ gases; add precursor emissions; divide by the weight of that type of good produced in the period.

That division gives the emissions intensity, in tonnes of CO₂e per tonne of good, rounded to five decimal places, and step 8 multiplies it by the weight actually imported.

Cement and fertilisers, which arrive in different mixtures and concentrations, take a modified functional unit set by a Treasury notice.

Which emissions count, which processes, which goods are precursors and how weight is determined are answered by the System Boundaries Document, version 1.00 dated 10 July 2026, incorporated by regulation 2.

It is versioned, so a later version would change what embodied emissions means without any amendment to the instrument.

For the emissions calculation a tonne is a metric tonne rounded to the nearest tonne, while the record-keeping rules want weight in kilograms.

Regulation 9 of S.I. 2026/995 says relevant emissions must be monitored over a calendar year.

For a good imported before 1 January 2028, the monitoring period is either the most recent year with verified data out of the year of import and the preceding year, or the year the good was produced.

For a good imported on or after 1 January 2028, it is the most recent year with verified data out of the two years preceding the year of import, or again the year of production.

HMRC’s policy summary puts the 2027 case the same way: for a good imported in May 2027 the importer uses verified 2027 data if it exists, and otherwise verified 2026 data.

Verification of a calendar year cannot finish until the year ends, so without this rule an early-2027 importer would have had no verified year to use.

The practical instruction is to ask suppliers now whether their 2026 emissions will be verified, and by whom.

Where the embodied emissions have already borne a carbon price abroad, the charge can be reduced by it.

S.I. 2026/809 sets the qualifying test in regulation 6 and the arithmetic in its later parts.

The relief turns on an effective carbon price, not a headline one: free allowances, the threshold above which a price bites, graduated pricing and rebates are netted off.

A jurisdiction can advertise a high carbon price and deliver a low effective one.

The importer performs the calculation, using a carbon pricing verification form completed by an accredited verifier and given to the installation.

HMRC published a provisional list of current qualifying carbon pricing schemes on 27 August 2026, and its guidance on working out Carbon Price Relief converts the relief to sterling at the rate HMRC publishes for the quarter before import, rounded down.

The same guidance caps the relief at the CBAM liability, so the answer is never negative, and an unconverted relief cannot be claimed.

The wider Carbon Price Relief collection carries the forms and examples.

Relief is credit for a foreign carbon price; it is not a link between schemes, and it does not make the EU and UK mechanisms one.

The first accounting period runs from 1 January to 31 December 2027, with the return and payment both due before the end of 31 May 2028.

The quarter ending 31 March 2028 is due on 31 July 2028 and the quarter ending 30 June 2028 on 29 September 2028; the policy summary gives 30 November 2028 and 28 February 2029 for the last two quarters of 2028.

After the September amendment the return carries the eight-digit commodity code, the weight, the Carbon Price Relief, the place of origin, the default value or verified intensity used, and whether a UK precursor was involved.

A nil return is still a return, including where relief absorbed the whole charge.

Regulation 3 of S.I. 2026/830 modifies the late-return penalty table in Schedule 24 to the Finance Act 2021 for the longer first period, so the penalty regime already reaches CBAM.

S.I. 2026/994 applies sections 101 and 102 of the Finance Act 2009, so late payment interest and repayment interest run on CBAM as on other taxes.

Where an officer thinks the weight on a return is wrong, or weight records were not kept, regulation 12 of S.I. 2026/802 lets the officer determine it by estimate and comparison.

A UK producer selling aluminium, cement, fertilisers, hydrogen or iron and steel into the EU meets the EU mechanism, which reached it first.

The UK producer is not the taxpayer: liability lies with the EU importer or its indirect customs representative as an authorised CBAM declarant.

The Commission’s definitive-regime page requires that status of EU importers bringing in more than the single mass-based threshold of 50 tonnes of CBAM goods; importers of hydrogen and electricity always need it.

What lands on the UK producer is a request for verified embedded-emissions data, set out in the Commission’s quick guide for non-EU operators.

The EU verifier must hold accreditation from a national accreditation body in the EU, so a verifier accredited only in the UK does not meet the EU wording; the Commission’s verification page tracks accreditation.

The data request for 2026 production arrives in the same year a UK producer that also imports is asking its own suppliers for verified 2026 data for the UK CBAM.

The EU’s rules and guidance are collected on its CBAM legislation and guidance page.

For a UK group with EU operations, the EU CBAM is a charge at the EU border and has nothing to do with the EU’s sustainability reporting rules, which are set out in EU reporting for UK companies and CSRD and UK SRS compared.

Each statement is in circulation, and each answer names the document that settles it.

The pattern in most of the false ones is the same: an EU fact, or a proposal, carried into a sentence about the UK tax.

The two mechanisms have different start dates, thresholds, scopes and administrators, and so far no agreement between them.

The 2024 consultation and its document are where several of the stale figures began.