The UK carbon border adjustment mechanism

Q: What should importers be doing now?

Classify imports. Check commodity codes against Schedule 16 and total the value of CBAM goods over a rolling 12 months. Talk to suppliers. Ask overseas producers for verifiable emissions data and evidence of any carbon price paid. Without it, default values will apply and cannot be swapped out later. Check who is the declarant. If an agent declares in its own name, the liability may sit with the agent rather than the business that owns the goods. Budget for cash flow. The charge is paid quarterly after the event, but it is a real cost that will affect pricing of contracts running into 2027. Keep CBAM separate from other green taxes. It is not the same as the climate change levy or plastic packaging tax, each of which has its own registration rules and thresholds. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

The UK carbon border adjustment mechanism (CBAM) is a new tax on the greenhouse gas emissions embodied in certain imported goods: aluminium, cement, fertilisers, hydrogen, and iron and steel. It applies to goods imported on or after 1 January 2027, is paid by the importer, and is calculated by multiplying the tonnes of carbon dioxide equivalent in the goods by a quarterly price linked to the UK Emissions Trading Scheme. Businesses importing less than £50,000 of CBAM goods in a rolling 12 months do not need to register and are not charged.

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What is the UK CBAM and where is the law?

CBAM is set out in Part 5 of the Finance Act 2026, sections 142 to 158, with Schedules 16 to 19. Section 142 creates the tax and section 143 charges it on the emissions embodied in a CBAM good when it is imported into the UK. Section 158 says the Part has effect for goods imported on or after 1 January 2027.

Because the price is built from UK Emissions Trading Scheme (UK ETS) auction prices, the charge links the carbon cost of these imports to the carbon cost faced by UK producers in the same sectors. CBAM is a separate tax from customs duty and VAT, but it hooks into the customs system: the person liable and the timing of the charge follow the customs import. For the customs side, see customs duty and commodity codes.

Which goods are covered?

Section 143(3) and Schedule 16 list five kinds of goods:

aluminium goods;
cement;
fertilisers;
hydrogen; and
iron and steel goods.

Schedule 16 defines each sector by commodity codes, with some codes excepted. An importer therefore needs the correct tariff classification to know whether a product is a CBAM good. Downstream products are only caught where their commodity code is listed, so classification is the first check for anyone importing fabricated metal products.

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Who pays CBAM?

Under section 146 the importer is liable. For a normal customs import this is the person in whose name the customs declaration is made or, where the declaration is made on behalf of someone else, the person on whose behalf it is made. This mirrors the customs position, so an importer using a customs agent under direct or indirect representation should check who is treated as the declarant. See customs intermediaries and direct or indirect representation.

Who is exempt?

Section 147 removes the charge where:

the importer is neither registered nor required to register at the time of import;
the goods are not imported in the course of a business;
the goods are of UK origin, or qualify for returned goods relief; or
to the extent that emissions relate to a UK origin CBAM good that was processed abroad into the imported good.

The Treasury can add further exemptions by regulations.

When must an importer register?

Schedule 17, paragraph 2, requires registration with HMRC if, on the first day of a month, the person imported CBAM goods worth £50,000 or more in the course of a business in the previous 12 months, or if they expect to import £50,000 or more of CBAM goods within the next 30 days. Registration must be made within 30 days of first triggering it. If HMRC thinks a person should have registered, an officer can register them.

The £50,000 test is a value test, not an emissions test, and it aggregates all CBAM goods across all five sectors. Paragraph 16 lets HMRC treat connected businesses as a single person where import activity has been artificially split to stay under the threshold.

How is the charge calculated?

Section 149 sets the charge at the sectoral domestic price multiplied by the tonnes of carbon dioxide equivalent emissions embodied in the goods. The Treasury publishes a sectoral domestic price for each CBAM sector for each calendar quarter. It is worked out by:

taking the average UK ETS auction clearing price per tonne in the preceding quarter; then
reducing it by the sector’s baseline free allocation percentage, adjusted for the reductions in free UK ETS allowances for that sector in that year.

The second step reflects the fact that UK producers in these sectors still receive some free allowances, so importers are charged on a comparable basis.

How are embodied emissions measured?

Section 148 defines embodied emissions as emissions attributable to producing the good, with the detail left to regulations. Schedule 17, paragraph 10 lets HMRC set out how emissions are determined and evidenced, including verification by a specified person. Paragraph 11 lets the Treasury publish default values, which may be set at a level that gives no advantage over using actual verified data. In practice, importers who cannot get reliable data from overseas producers should expect default values to cost more.

What if carbon has already been paid abroad?

Section 150 gives carbon price relief where another monetary amount is payable in relation to the same emissions. That includes a carbon tax, payments for allowances under an overseas emissions trading scheme, or a charge made by another country on import. Regulations will set out which carbon prices qualify and how the relief is calculated.

What does a worked example look like?

Illustration only. A UK fabricator imports 500 tonnes of steel coil from a non UK mill in a quarter, worth well over £50,000, so it must register. The mill supplies verified data showing 2 tonnes of carbon dioxide equivalent per tonne of steel, so the goods embody 1,000 tonnes. Assume the published sectoral domestic price for iron and steel for that quarter is £30 per tonne.

Step	Figure
Embodied emissions	500 × 2 = 1,000 tCO2e
CBAM before relief	1,000 × £30 = £30,000
Carbon price relief (assume £5 a tonne paid in the producing country)	1,000 × £5 = £5,000
CBAM due	£25,000

The real price and any relief will depend on the figures the Treasury publishes and the regulations in force.

How do returns and payments work?

Schedule 17, Part 3 sets out the default framework:

accounting periods are calendar quarters ending March, June, September and December;
a return is due, and payment must be made, by the end of the last working day of the second month after the quarter ends;
a return can only be amended to correct an error, and emissions reported using default values cannot later be replaced with actual data;
HMRC can require records to be kept for up to 6 years.

Section 158 lets the Treasury modify the registration rules and the accounting periods and deadlines for 2027 and 2028, so the first years may run differently. Schedule 18 contains criminal offences, and Schedule 17 contains penalties, reviews and appeals.

What should importers be doing now?

Classify imports. Check commodity codes against Schedule 16 and total the value of CBAM goods over a rolling 12 months.
Talk to suppliers. Ask overseas producers for verifiable emissions data and evidence of any carbon price paid. Without it, default values will apply and cannot be swapped out later.
Check who is the declarant. If an agent declares in its own name, the liability may sit with the agent rather than the business that owns the goods.
Budget for cash flow. The charge is paid quarterly after the event, but it is a real cost that will affect pricing of contracts running into 2027.
Keep CBAM separate from other green taxes. It is not the same as the climate change levy or plastic packaging tax, each of which has its own registration rules and thresholds.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.