Synopsis
The Finance Act 2026 establishes the UK Carbon Border Adjustment Mechanism (UK CBAM), which will apply from 1 January 2027.
The UK CBAM will require qualifying importers of certain goods from the aluminium, fertiliser, cement, hydrogen and iron and steel sectors to register for this tax.
This tax will apply to the embodied emissions associated with the imported goods, which aims to tackle the risk of 'carbon leakage' when production is outsourced to countries with less strict climate change legislation.
Summary
The Finance Act 2026 establishes the UK CBAM, which will apply from 1 January 2027.
Qualifying importers will be required to register for and pay the CBAM tax on imported goods. The UK CBAM is also expected to have indirect impacts on companies with supply chains that include CBAM goods.
UK CBAM Sectors
The UK CBAM will apply to imported goods within the aluminium, fertiliser, cement, hydrogen and iron and steel sectors. Schedule 16 to the Act lists commodity codes for goods that will be subject to the UK CBAM. Unless specifically excluded, goods that fall under the listed community codes or longer more specific codes within the codes will be within scope.
Registration Obligations
Importers will be required to register with the HMRC for the CBAM when:
Registered or registrable persons must account for and pay the CBAM tax for each calendar year quarter accounting period. The payment must be made before the end of the last working day of the second month following the accounting period. Returns must also be submitted for each accounting period.
Registrants must submit evidence of calculated emissions for imported goods and eligibility for any carbon price relief.
Registrants must maintain records for at least six years following the end of any accounting period.
Rate of CBAM
A single rate of CBAM tax will apply per sector (the ‘sectoral domestic price’). These rates will be calculated by the following two steps:
Carbon price relief will be applied based on the verified carbon price previously paid on embodied emissions for UK CBAM goods. This will apply where the goods have been subject to another qualifying carbon pricing scheme, e.g., an emissions trading scheme and/or where embodied emissions taxation (e.g. under the EU CBAM) has been applied in a foreign country or territory.
Rates of CBAM tax charged on imports will be calculated as follows:
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CBAM liability = UK CBAM rate (calculated by multiplying the imported embodied emissions by the CBAM rate) minus any Carbon Price relief (calculated by multiplying the relevant embodied emissions by the deductible carbon price) |
Administration and enforcement of the UK CBAM
The UK CBAM will apply when a good is imported to the UK, whether this be for the first time or on re-import. The importer of these goods will be liable for the tax.
Schedule 17 applies arrangements for the administration and enforcement of the UK CBAM. A host of exemptions from the tax are defined in Section 147 of the Act, including when the import is not being undertaken in the course of a business or the importer is not registrable or registered.
Calculating embodied emissions
Future regulations will define how emissions embodied in CBAM goods will be determined, calculated and evidenced.
Where more detailed information is not available, default values may be set by the treasury for determining embodied emissions. These may vary depending on where the embodied emissions were emitted and concern any portion of the embodied emissions in the goods. The default values must be set at a level where they cannot conclude that the embodied emissions were less than those calculated in detail.
UK CBAM Offences
Schedule 18 defines offences relating to the UK CBAM. These consist of fraudulent evasion and misstatement.
UK CBAM: Amendments to other legislation
Schedule 19 amends other tax and finance-related legislation to reflect the introduction of the UK CBAM.
Potential impacts from linked Emissions Trading Schemes (ETSs)
Should the UK ETS be linked with other ETS schemes in the future (e.g., the EU ETS), future regulations may exclude goods subject to these linked schemes from the UK CBAM. This would mean the UK CBAM tax would not apply to goods imported from sectors subject to these ETSs and these goods would not count towards the UK CBAM registration thresholds.
Draft Legislation Supporting the UK CBAM
A consultation that closed during March 2026 presented the following draft legislation supporting the UK CBAM:
GUIDANCE
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