The clock is ticking for importers: CBAM comes into force in 10 months

Geographically, the UK CBAM will apply to goods imported into the UK (including Northern Ireland) from anywhere else in the world including British Overseas Territories, the UK Continental Shelf and Crown Dependencies such as the Isle of Man.

Specific goods, identified by their commodity codes, from the following sectors are defined as UK CBAM goods:

• Aluminium;
• Cement;
• Fertiliser;
• Hydrogen; and
• Iron and steel.

No! That is the short answer. For starters, the UK CBAM does not include electricity as a separate sector. It also does not involve buying, surrendering or transferring certificates. The UK CBAM will operate as a free-standing environmental tax which will rely heavily on Customs data in terms of commodity codes and on emissions data in respect of manufacturing processes.

Furthermore, there will be no transitional period. Those involved with the EU CBAM will be familiar with the lengthy data gathering period that has only recently come to an end with the launch of the ’definitive regime’ for EU CBAM. Instead, the UK CBAM will allow for business familiarisation and bedding-in by way of an initial 12 month accounting period followed by a further five months to submit and pay the tax due. From 1 January 2028, the tax will move onto quarterly returns with gradually reducing time to submit and pay.

We now know much more about HMRC’s intended ways of managing this new indirect tax. The registration threshold will be set at £50,000 in terms of the value of imported CBAM goods. Although registration will open in late 2026 via the Government Gateway, only goods imported from 1 January 2027 will be taxable.

CBAM liability will be calculated by multiplying the CBAM tax rate (not yet published) by emissions data for each product to produce the CBAM charge. The emissions data will be obtained from the supply chain and independently verified (a complex task). This number can then be reduced by any carbon price relief that may be available.

Recognising the difficulty in obtaining and verifying actual emissions data, the Government will publish default emissions values to be used at least in the short term.

The devil is certainly in the detail for this tax, and businesses are now tasked with accumulating a significant amount of detail about the products they import into the UK. This is not a straightforward task, and they are advised to develop plans for identifying and gathering the relevant information, obtaining verification and then managing the tax on an ongoing basis.

Many businesses will also be considering future pricing and what to build into their business models to cover the impact of the UK CBAM. This remains difficult with only relatively broadbrush modelling available at this stage, but that will change as the year progresses.

The key will be to build up an understanding of the tax and then develop a flexible implementation plan.

For further information please contact:

• Barbara Bell