UK Carbon Border Tax: What’s Coming in 2027

The UK Carbon Border Adjustment Mechanism (CBAM) will come into effect from 1 January 2027. Unlike the EU CBAM, the UK mechanism has been explicitly framed as a tax-based levy. Its purpose is to ensure a level playing field between the carbon price applied to imported goods and those produced domestically.

The mechanism will work by charging registrable importers a sector-specific CBAM rate on in-scope goods.

The following sectors are currently within scope:

In-scope sectors

• Aluminium
• Cement
• Fertilisers
• Hydrogen
• Iron and steel

It is worth noting that the potential inclusion of glass and ceramics remains under review.

How UK CBAM registration and filing will work

• Any liable person importing more than £50,000 of in-scope goods within a rolling 12-month period will be required to register.
• Any registration obligation triggered during 2027 must be completed by 31 January 2028.
• The person liable for registration will be the individual responsible for completing the customs declaration, the person on whose behalf the declaration is made, or the importer of record.

The first CBAM return, covering the 2027 calendar year, will be submitted as an annual return, with the first payment due on 31 May 2028.

After this, CBAM returns will be filed quarterly, with each return having its own payment deadline.

How the UK CBAM rate works

The CBAM rate will apply per tonne of embodied direct emissions and will be calculated in line with the methodology set out by the government (see diagram below). The government has also indicated that indirect emissions may be brought within scope at a later date.

• Emissions values may be based on actual emissions data or government default values.
• CBAM rates for each sector will be updated quarterly in line with average UK Emissions Trading Scheme (UK ETS) free allocation values.
• Adjustments will be available where an explicit carbon price has already been paid in the country of origin, as well as for the allocation of free allowances under the UK ETS.

Which industry sectors may be most affected?

Given the nature of the included sectors, the businesses most affected are likely to be those reliant on these materials as key inputs, including:

• Manufacturing and metals businesses using aluminium, iron, or steel
• Construction and infrastructure companies relying on metals and cement
• Agricultural businesses using fertilisers
• Energy-intensive industries using hydrogen

Preparing for change

Businesses with significant international trade involving the above sectors should begin considering their CBAM position now.

Given the relatively modest £50,000 threshold, many businesses may find themselves within scope. It will therefore be important to understand potential liabilities and prepare the necessary compliance processes before the mechanism comes into force.

This is particularly important as secondary legislation confirms that penalties and fines will apply for non-compliance with registration and filing obligations.

As a starting point, businesses may wish to consider:

1. UK CBAM impact assessments
2. Supply chain optimisation
3. Strategic planning for global trade
4. UK CBAM compliance assessments

Depending on the scale of potential liability, businesses may also benefit from implementing CBAM monitoring or compliance-tracking tools.

How we can help

K3 Tax Advisory has an experienced indirect tax team that can support businesses in assessing their potential exposure to UK CBAM.

We can help clients evaluate their liability, implement appropriate compliance processes, and ensure they are prepared for the new reporting and payment requirements, reducing the risk of penalties and operational disruption. For more information, please contact Amanveer Singh at amanveer.singh@k3.tax