The UK Carbon Border Adjustment Mechanism (UK CBAM) applies from 1 January 2027 to imports of aluminium, cement, fertiliser, hydrogen, and iron and steel. A business must register with HMRC once it imports £50,000 or more of covered goods in 12 months, and the first return and payment, covering all of 2027, is due by 31 May 2028.
- UK CBAM applies from 1 January 2027 to imports of aluminium, cement, fertiliser, hydrogen, and iron and steel. Electricity, glass and ceramics are outside the scheme at the start.
- The registration threshold is £50,000 of covered imports in 12 months. HMRC estimates that over 80% of businesses that would otherwise be affected fall below it, and that about 10,000 businesses are significantly affected.
- The charge is a sector rate per tonne of embodied emissions, built from the UK ETS auction price and reduced by free allocation, with relief for carbon prices already paid abroad.
- All of 2027 is one accounting period. The first return and payment are due by 31 May 2028, and quarterly periods start on 1 January 2028.
- Default emissions values and indicative rates were still unpublished on 15 October 2026. HMRC has committed to publish initial defaults before the scheme starts.
- Unlike the EU scheme, UK CBAM has no certificates to buy. The liability is paid to HMRC on a return, and penalties come from existing HMRC regimes with no per-tonne fine.
- What UK CBAM is and why it exists
- Which goods and which businesses are in scope
- How the charge is calculated, with a worked example
- Carbon price relief
- Emissions data, default values and verification
- The calendar from 2026 to 2029
- UK CBAM and EU CBAM compared
- Where the legislation stands
- What the government expects it to raise
- Penalties and compliance risk
- UK-EU ETS linkage and what could change
- A preparation checklist for importers
- What is still unknown
- Frequently asked questions
What UK CBAM is and why it exists
UK CBAM is a charge on the carbon emitted when certain goods are made abroad and then imported into the United Kingdom. The aim is simple to state. UK producers in covered sectors pay for their emissions through the UK Emissions Trading Scheme (UK ETS), and many receive some free allowances while the scheme is phased in. Without a border charge, a buyer could switch to an overseas supplier that faces no carbon cost, which moves production and emissions out of the UK without reducing them. Policymakers call that carbon leakage.
The mechanism is written into the Finance Act 2026 (Part 5 and Schedules 16 to 19) and a set of statutory instruments made in July and September 2026. It starts on 1 January 2027. The European Union's equivalent entered its definitive period on 1 January 2026, so a business that sells steel or aluminium into both markets now faces two separate regimes with different rules. For background on the EU side, see our guide to EU CBAM and our explainer on how the EU ETS works.
The charge falls on the importer, not on the overseas producer. In practice the cost is usually negotiated between the two, which is why exporters into the UK, including those covered in our India CBAM Center, need to understand the rules even though they never file a UK return themselves.
Which goods and which businesses are in scope
Sectors. Five sectors are covered from the start: aluminium, cement, fertiliser, hydrogen, and iron and steel. The goods within each sector are defined by commodity code in the legislation, so the first step for any importer is to match its customs codes against HMRC's list rather than relying on a sector label. Scrap metal is excluded.
What is left out at the start. Electricity is not in scope, which is a clear difference from the EU scheme. Glass and ceramics, which appeared in early proposals, are also excluded from the 2027 start. Indirect emissions, meaning the emissions from the electricity used to make the goods, are excluded and cannot be brought in before 2029 at the earliest, according to the HM Treasury factsheet and HMRC's policy paper, which was last updated on 9 September 2026.
The £50,000 threshold. A business must register once it has imported £50,000 or more of covered goods in the preceding 12 months, or expects to import that value within the next 30 days. Only covered goods count toward the test, not a business's total imports. The original proposal set the threshold at £10,000. Raising it fivefold changes who is affected. HMRC estimates that over 80% of the importers who would otherwise have been caught fall below the new level, and that about 10,000 businesses are significantly affected.
A business below the threshold does not register, does not file and does not pay. A business above it must register and file returns. Importers whose volumes sit near £50,000 should track the rolling 12-month total monthly, because the 30-day forward-looking limb of the test can trigger registration before the historical total does.
How the charge is calculated
The liability has three parts: the sector rate, the embodied emissions in the goods, and any relief.
Liability = sector rate x embodied emissions (tonnes of CO2e) minus carbon price relief
The sector rate. HMRC sets one rate per sector per quarter. It equals the average UK ETS auction clearing price for the preceding quarter (see our live carbon price tracking for where compliance prices stand), reduced by the sector's adjusted free allocation percentage. In effect, the reduction mirrors the free allowances UK producers still receive, so the border charge reflects only the part of the carbon cost that UK producers actually bear. As free allocation is phased down, the share of the auction price passed into the rate rises.
The embodied emissions. These are the direct emissions from producing the goods, measured in tonnes of CO2e. They come either from verified actual data supplied by the producer or from default values published by HMRC.
The relief. A carbon price already paid in the country of production can reduce the bill. See the next section.
A worked example, with invented numbers. HMRC had not published rates when this article was written, so the figures below are illustrative arithmetic, not forecasts and not HMRC rates. Assume a UK ETS auction price of £50 per tonne for the preceding quarter and an adjusted free allocation percentage of 80% for the sector.
| Step | Figure |
|---|---|
| UK ETS auction price, preceding quarter (assumed) | £50 per tonne |
| Adjusted free allocation percentage (assumed) | 80% |
| Sector rate: £50 x (1 minus 0.80) | £10 per tonne CO2e |
| Embodied emissions in the shipment (assumed) | 2,000 tonnes CO2e |
| Gross liability: £10 x 2,000 | £20,000 |
| Carbon price relief (none in this case) | £0 |
| Liability | £20,000 |
Now change one input. If the same goods came from a producer that paid a verified carbon price equivalent to £30 per tonne on those 2,000 tonnes, relief would be £60,000. Relief is capped at the liability, so the charge falls to zero. It does not become a credit. The point is the shape of the formula: a lower free allocation percentage or a higher auction price raises the rate, and a verified carbon price paid abroad can remove the charge.
Carbon price relief
Relief is available where a qualifying carbon price has been paid on the emissions in the goods. It is capped at the liability, and the price paid must be independently verified.
HMRC published a provisional list of qualifying carbon pricing schemes on 27 August 2026, naming 16 schemes, including the EU ETS. The assessments reflect information to 19 June 2026, and the list is not exhaustive. Being on the list gives access to relief, not exemption. The importer still has to evidence the price actually paid on the specific goods, and emissions covered by free allowances do not qualify, because no effective carbon price was paid on them. A country having a carbon price does not exempt its exporters.
Section 156 of the Finance Act 2026 allows goods from a linked carbon pricing scheme to be excluded from the charge. No such exclusion exists today. It is the legal hook that a future UK-EU link would use, which is covered below.
In practical terms, relief turns on supplier paperwork. Importers should ask each supplier which carbon price applies at the installation, how it is calculated and who verifies it.
Emissions data, default values and verification
An importer needs an emissions figure for every tonne of covered goods. There are two routes.
Actual data. The producer measures the embodied emissions and has them verified by an accredited verifier. The rules, set out in the emissions and verification regulations (SI 2026/995), reference ISO/IEC 17029 and ISO 14065. UKAS accreditation for verifiers is being developed, which means the accredited verification market was not fully in place when this was written.
Default values. Where actual data is not available or not verified, HMRC's default values apply. HMRC has committed to publish initial defaults before 1 January 2027 and had not done so by 15 October 2026. Defaults in carbon border schemes are generally set conservatively, to give producers a reason to supply real data. That is an expectation based on how such schemes work, not a statement about the UK values, which are unpublished.
The commercial consequence is clear. A supplier that can supply verified installation-level data may face a lower charge than one relying on defaults, and the importer is the party exposed to the difference. Because indirect emissions are excluded at the start, the data request is narrower than under the EU scheme for cement and fertilisers.
The calendar from 2026 to 2029
The filing calendar is unusual because the first period is long.
- 2027. The whole of calendar year 2027 is a single accounting period. There is no return to file until the period ends.
- By 1 January 2028. HMRC has said registration will open by this date. Importers above the threshold register before filing.
- From 1 January 2028. Quarterly accounting periods begin. Returns are due on the last working day of the second month after each quarter ends.
- 31 May 2028. The first return and payment, covering 1 January to 31 December 2027, are due. A return is required even where the liability is nil. There is no scheme to defer payment.
- 2029 at the earliest. Indirect emissions could be brought into scope.
The long first period helps with cash flow, since nothing is paid until May 2028, but it also means a full year of imports builds up before the first bill. A business importing steady volumes through 2027 is accumulating a liability from day one. Finance teams should accrue it as the goods arrive, even though no payment is due until 2028.
UK CBAM and EU CBAM compared
The two schemes share a purpose but differ in mechanics, and the differences have commercial effects.
Mechanism. The EU requires authorised declarants to buy and surrender CBAM certificates priced off EU ETS allowances. The UK charges a liability on a return and collects it through HMRC. There is no UK certificate market to trade in or hold.
Thresholds. The EU exempts importers below 50 tonnes of goods a year, a mass-based test introduced by a 2025 simplification regulation. The UK uses a value test of £50,000. A trader in a light, high-value product and a trader in bulk steel can land on opposite sides of the line under the two schemes.
Scope. The EU includes electricity and, for cement and fertilisers, indirect emissions. The UK includes neither at the start.
Penalties. The EU fixes a penalty of €100 per tonne of unsurrendered emissions for authorised declarants. The UK relies on existing HMRC penalty regimes, with no per-tonne fine.
Timing. The EU definitive period began on 1 January 2026 (see the EU ETS price outlook for how its certificate price is derived), and its annual declaration is due by 30 September of the following year. The UK starts one year later and uses a 31 May 2028 date for the first payment. Our ranking of compliance market prices compares the two allowance prices.
A business exporting from the UK to the EU also faces EU CBAM on its own goods. How a UK carbon price is treated there depends on the EU's recognition of the UK ETS, which is covered below.
Where the legislation stands
Primary legislation is in place. The Finance Act 2026 contains the core provisions, in Part 5 and Schedules 16 to 19. Secondary legislation fills in the detail:
- Statutory instruments 2026/802, 2026/809 and 2026/830 were made on 13 and 14 July 2026.
- SI 2026/995, covering emissions and verification, was made on 8 September 2026.
- SI 2026/994 deals with interest.
- SI 2026/809 sets the rules for calculating the CBAM rate and carbon price relief. Its parliamentary approval was still in progress in mid-October 2026.
The statute and the instruments on legislation.gov.uk are the primary sources. Commercial CBAM guides are useful for orientation but vary in accuracy, so check any date or figure that will drive a decision against HMRC's guidance.
What the government expects it to raise
HM Treasury forecasts Exchequer receipts of £30 million in 2026-27, £140 million in 2027-28, £180 million in 2028-29, £175 million in 2029-30 and £155 million in 2030-31. The five figures sum to £680 million. The government also estimates one-off costs to business of £9 million and ongoing administrative costs of £16 million, plus about £24 million for the HMRC IT system.
Two readings are fair. First, the scheme is small in fiscal terms. Receipts peak at £180 million in 2028-29, which tells you the policy goal is the price signal on imports, not revenue. Second, the totals depend on carbon prices, import volumes and how many importers switch to verified data, none of which is fixed. These are forecasts, not outturn.
Penalties and compliance risk
The UK has not created a new penalty regime for CBAM. Existing HMRC regimes apply, including a points-based approach to late filing similar to the one used for VAT. There is no per-tonne fine of the kind the EU applies.
That does not make the risk small. Returns are required even when nothing is owed, so a missed nil return is still a failure to file. There is no deferment scheme, so the 31 May 2028 payment date is fixed. And because the liability is built from supplier data, the larger risk is financial: an importer that cannot evidence emissions or relief pays on defaults.
UK-EU ETS linkage and what could change
The biggest open policy question is whether the UK and EU carbon markets will link. The UK government has confirmed a summit in Brussels on 20 November 2026 with emissions trading on the agenda. A report by a news outlet on 7 October claimed a link had been agreed; that is a media report and not an official announcement. The EU does not currently treat the UK ETS as linked for CBAM purposes.
If a link were agreed, goods from a linked scheme could be excluded from each side's CBAM under provisions like section 156 of the Finance Act 2026, and UK exporters might avoid paying twice. That is a possibility, not a promise, and timing and terms are unknown. Treat any plan that assumes a link as a scenario until legislation says otherwise.
A preparation checklist for importers
- Map your codes. Match the commodity codes of everything you import against the in-scope list. Many importers will find only a few lines are covered.
- Check the threshold. Total the value of covered goods imported over the last 12 months and keep a rolling figure. Add expected imports for the next 30 days.
- List suppliers and installations. For each covered product, identify the producing installation, not just the trading company.
- Ask for emissions data now. Request verified, installation-level direct emissions per tonne, who verified it, and which standard was used.
- Ask about carbon prices paid. Find out whether the installation pays a carbon price, under which scheme, and what evidence exists.
- Settle who bears the cost. Review supply contracts for price adjustment clauses and who carries a new border charge.
- Keep records from day one of 2027. The 2027 period is a calendar year, and the data will be needed in 2028.
- Plan the cash. Accrue the liability through 2027 and budget for payment by 31 May 2028.
What is still unknown
- The default emissions values and the indicative sector rates.
- The final shape of the rate and relief regulations, pending approval.
- How the four quarterly 2027 rates feed into the single 2027 return.
- The exact registration deadline and the opening date of HMRC's registration service.
- The UKAS accreditation timetable for verifiers.
- Whether a UK-EU ETS link is agreed and how CBAM treats goods from the linked scheme.
- Whether and when indirect emissions, and further sectors, are added.
Frequently Asked Questions
When does UK CBAM start?
UK CBAM applies from 1 January 2027. All of 2027 is a single accounting period, and the first return and payment are due by 31 May 2028.
Which goods does UK CBAM cover?
Aluminium, cement, fertiliser, hydrogen, and iron and steel, defined by commodity code. Electricity, glass, ceramics and scrap are not covered at the start.
Who has to register for UK CBAM?
A business that has imported £50,000 or more of covered goods in the preceding 12 months, or expects to within the next 30 days. HMRC says registration will open by 1 January 2028. Importers below the threshold do not register or pay.
How is the UK CBAM charge calculated?
The sector rate, set per quarter, equals the average UK ETS auction price of the preceding quarter reduced by the sector's adjusted free allocation percentage. It is multiplied by the tonnes of embodied emissions, and carbon price relief is deducted, capped at the liability.
Are indirect emissions included?
No. Indirect emissions are excluded at the start and cannot be brought in before 2029 at the earliest.
Does UK CBAM apply to electricity?
No. Electricity is not in scope, which differs from the EU scheme.
How is UK CBAM different from EU CBAM?
The EU requires importers to buy and surrender certificates, has a 50-tonne threshold, includes electricity and a €100-per-tonne penalty, and started in 2026. The UK charges a liability on an HMRC return, has a £50,000 threshold, excludes electricity, uses existing HMRC penalties and starts in 2027.
Sources
- HM Treasury, UK Carbon Border Adjustment Mechanism factsheet, 2026
- HMRC, policy paper on the introduction of the Carbon Border Adjustment Mechanism from 1 January 2027, last updated 9 September 2026
- HMRC, Carbon Border Adjustment Mechanism: list of current qualifying carbon pricing schemes, 27 August 2026
- Finance Act 2026, Part 5 and Schedules 16 to 19, legislation.gov.uk
- Statutory instruments 2026/802, 2026/809, 2026/830, 2026/994 and 2026/995, legislation.gov.uk
- House of Commons Library, briefing on the UK Carbon Border Adjustment Mechanism, 2026
- UK government statement on the 20 November 2026 EU summit
- Regulation (EU) 2023/956 and the 2025 CBAM simplification regulation, with law firm summaries, October 2025
- Trade press and law firm summaries of UK CBAM filing dates, 2026
A note on accuracy. This article reflects public information as of 15 October 2026. Several items were still moving: HMRC's default values and illustrative rates, parliamentary approval of the rate and relief regulations, and the UK-EU summit on 20 November. The worked example uses invented figures and is labelled as such. Statements about the EU scheme draw on law firm summaries of the 2025 simplification regulation. Check the primary texts on legislation.gov.uk and gov.uk before taking a compliance or commercial decision. This is general information, not legal or tax advice.