On 24 April 2025, HM Revenue & Customs (HMRC) and HM Treasury published draft primary legislation and an associated technical consultation on the introduction of a UK carbon border adjustment mechanism (CBAM). The draft CBAM legislation follows a prior public consultation on the UK Government’s initial proposals for a CBAM which concluded in June 2024. CBAM forms part of the UK government’s wider strategy to tackle carbon leakage. To achieve this it will impose a carbon price on imported goods with the aim of levelling the playing field and ensuring that imported goods are subject to a carbon price that is comparable to that incurred by manufacturers based in the UK. The UK Government has now also published a policy update on UK CBAM. Further detailed guidance is expected to be provided in advance of the commencement of CBAM on 1 January 2027.
The technical consultation seeks to ensure that the primary legislation meets the policy intent and is not a further consultation on the policy design. The consultation invites views from interested parties, including importers and their agents, other businesses, individuals, tax advisors, trade and professional bodies. Feedback on the draft legislation should be sent by email to cbampolicyteam@hmrc.gov.uk by 11:59pm on 3 July 2025.
Notable updates since the original proposals in 2024, include:
- Regarding the scope of UK CBAM:
- Glass and ceramics are no longer included in the annex detailing the specified goods that will be subject to CBAM. This is consistent with the EU CBAM position. In contrast with the EU position, electricity remains out of scope of UK CBAM;
- The UK government has confirmed that imported scrap products within the aluminium and iron and steel sectors will be excluded from UK CBAM.
- The draft legislation confirms that the person liable to CBAM is the importer and if the goods are being imported on behalf of someone else, then the person liable is the person on whose behalf the good is imported; and
- The minimum registration threshold has increased from £10,000 (as per the original proposal) to £50,000 – an importer is not required to register under CBAM unless (i) the person imported into the United Kingdom CBAM goods with an aggregate value of £50,000 or more in the last 12 months, or (ii) the person expects they will meet or exceed the minimum over the next 30 days.
The UK government has also clarified several key concepts:
- CBAM liability will be calculated by multiplying the imported embodied emissions by a CBAM rate:
- The UK government confirmed that importers will be permitted to use default values for calculating embodied emissions.
- The CBAM rate is the rate that will apply to the emissions embedded in CBAM goods imported into the UK:
- A single rate will apply per sector covered by the UK CBAM;
- This rate will be determined with reference to the UK’s domestic carbon pricing mechanisms, namely the UK Emissions Trading Scheme (ETS) and the Carbon Price Support (which applies only to fossil fuels used for electricity generation in Great Britain)
- The applicable rate will be published at the beginning of each quarter, starting from 1 January 2027.
- The draft legislation confirms the exemption for goods originating in a jurisdiction with a linked carbon pricing scheme, like the ETS in the European Union.
- The UK government will have the authority to grant exemptions for goods from jurisdictions that have entered into arrangements to link their ETS with the UK ETS.
- In such cases, CBAM goods will not need to be reported in a CBAM return, nor will they count toward the minimum registration threshold for CBAM liability.
- Accounting period details:
- The first CBAM accounting period will span 12 months, from 1 January 2027 to 31 December 2027. Returns and payments will be due by 31 May 2028, allowing businesses sufficient time to gather the necessary supporting information for their first return.
- From 2028, subsequent accounting periods will shift to a quarterly basis, with a two-month window for return submission and payment. This change aims to better align CBAM with other UK tax models while still providing businesses adequate time to compile the required data.
Further detail on the differences between the UK and EU CBAM can be found in our previous blog post here.
