Preparing your business for UK CBAM

In May, we explained how the EU CBAM (Carbon Border Adjustment Mechanism) regulations would affect the fastenings industry in the UK and Europe.

Since then, there has been a significant shift in the CBAM landscape. The UK government is set to implement its version of the CBAM, effective from 1 January 2027, without a transitional period as there is for the EU CBAM.

In August, we reviewed the UK government’s fact sheet to provide key information about the UK CBAM. As the UK government has now released their response to the policy design consultation, we have updated the blog to reflect this new information. We also provide some next steps to prepare your company for the impact of the UK CBAM.

Why is the UK Government introducing UK CBAM?

The UK government’s decision to introduce UK CBAM is a strategic move to tackle carbon leakage in the manufacturing and movement of carbon-intensive goods imported into the UK.

The UK CBAM will contribute to ambitious targets to reduce emissions by 68% from 1990 levels by 2030, en route to net zero by 2050.

Which sectors will the UK CBAM affect?

The UK CBAM applies to the most emissions-intensive industrial goods imported to the UK. Following the consultation, the government has decided that the UK CBAM will not initially include glass and ceramics as they are less emissions-intensive than the other sectors in scope. For now, the complete sector list is:

• Iron
• Steel
• Aluminium
• Hydrogen
• Cement
• Fertilisers

While this now removes the immediate liability to our bathroom manufacturing customers, fixings and fasteners providers, and builders merchants still need to prepare.

Bathroom manufacturers shouldn’t ignore the UK CBAM, as glass and ceramics will likely be included further down the line.

Tom Reynolds from the Bathroom Manufacturers Association thinks it’s important to start preparing for CBAM now, “Preparing now will save stress and potential penalties further down the line. We’ll be updating our members as more information becomes available.”

Understanding the UK CBAM

What is UK CBAM?

The UK CBAM is a carbon tax on some of the most emissions-intensive goods imported to the UK. It will ensure highly traded, carbon-intensive goods imported from overseas face a carbon price comparable to what would have been payable had they been produced in the UK.

Here’s what we know so far.

Liability and pricing

1. The liability the CBAM applies will depend on the imported good’s intensity of greenhouse gas emissions and the gap between the carbon price used in the country of origin (if any) and the carbon price that would have been applied had the goods been produced in the UK.
2. CBAM liability will lie directly with the importer of imported products, based on emissions embodied in imported goods. This won’t require purchasing or trading of emissions certificates.
3. The UK CBAM will apply an effective carbon price (the price paid by producers after accounting for the impact of free allowances and other support mechanisms) to imports that is significantly lower than the headline explicit UK Emissions Trading Scheme (UK ETS) price, to reflect domestic free allowances. 
4. The price applied to CBAM will be based on the explicit carbon price differential between the UK and the production country.
5. The government will consult more on the criteria for global carbon prices to be recognised by the UK CBAM.

Customs controls and registrations

CBAM liability comes into effect depending on whether goods are subject to customs controls, which also decides who needs to register for and submit returns:

• If items are subject to customs controls, the importer or owner is liable. Liability is effective on the date the goods are released into free circulation.
• If items are not subject to customs controls, the person for whom the goods are moved to the UK is liable. Liability is effective on the date the goods enter the UK.

The government maintains the proposed definition of the liable person is the right approach and confirms that individuals importing CBAM goods for personal use will not be liable for the UK CBAM.

Regarding the tax point relating to other customs procedures, for goods exported under the outward processing procedure and reimported into the UK as a CBAM good, the CBAM tax point will arise at free circulation but will be based on the processing emissions that took place outside of the UK.

For CBAM goods that originated outside of the UK and are reimported using the returned goods relief, there will be no UK CBAM liability, providing the conditions for applying the relief for customs purposes are met. This means CBAM goods imported into the UK within three years of an unaltered state will be out of scope and not incur a CBAM liability.

What are the emissions scope categories, and which will apply for a UK CBAM?

The government has confirmed that the UK CBAM will be applied to Scope 1 and 2 emissions and select precursor product emissions embodied in imported products to ensure comparable coverage with the UK Emissions Trading Scheme. However, when drafting the legislation, they will consider the request for technical wording changes to the definitions of direct and indirect emissions.

The government has also confirmed they will make default values available to ensure that importing goods can continue where actual emissions data might not be available.

• Scope 1 emissions relate to direct activities owned or controlled by the manufacturing organisation associated with producing goods.
• Scope 2 emissions come from indirect emissions not directly controlled by the product manufacturers, such as consumed and purchased electricity, heat, steam and cooling.  

The government encourages importers of affected CBAM goods to engage with international suppliers to maximise the time available to obtain the actual emissions values rather than rely on default values.

Default values will be set per product, and the government will confirm the methodology used for their calculation. These will be published in advance of the 2027 introduction.

What is the registration threshold for the UK CBAM?

The government has decided to increase the minimum threshold for CBAM from £10,000 to £50,000. Two tests will determine if the threshold has been met or exceeded.

• With the forward-looking test (Test 1), traders should register for CBAM if they expect the value of CBAM goods to exceed the £10,000 limit in the next 30 days.
• With the historic test (Test 2), traders should register for CBAM if the value of CBAM goods exceeded the £10,000 limit in the previous 12-month rolling period. The government has agreed to change the frequency of the backwards-looking test from daily to monthly.

The effective registration date will either be the day the threshold is expected to have been met or exceeded (Test 1) or the date the goods met the threshold (Test 2). Businesses will have 30 days to notify HMRC.

The government will provide further clarity on the forward and backwards-looking tests before the tax comes into force.

Submitting CBAM returns

Online CBAM returns must be submitted at the end of the accounting period, which is aligned with the UK’s calendar year. The first accounting period will last 12 months until 31 December 2027, and the first return must be submitted by 31 May 2028.

The government will provide clear and timely guidance before the UK CBAM comes into force to help understand reporting obligations. However, they will continue with the proposed initial five-month return window.

Following this, there will be fixed quarterly accounting periods:

*There will be a 30 June deadline in 2028 to ensure that this doesn’t coincide with the deadline for the first CBAM return.

The government will continue to consider the approach to accounting and payment periods from 2028 alongside the requirements for measuring and verifying emissions, calculating and verifying the overseas carbon price, and the information required on return.

Non-compliance

The government confirms that CBAM penalties for late submission of returns and late payments will align with the VAT penalty points system as far as possible.

Where CBAM liability applies, CBAM-related paper or digital records must be kept for six years. These could be invoices and carbon price and emissions information. Failure to keep records and general non-compliance, such as late registration and failure to provide information, will result in penalties.

Criminal offences will apply to those knowingly involved in fraudulent CBAM evasion.

As it is already an offence to misdescribe imported goods for customs purposes, the risk of misdescription will be closely monitored upon introducing the UK CBAM.

The government will also introduce a criminal offence for fraudulent evasion of the UK CBAM, stating that these powers and sanctions aim to promote compliance and reassure compliant businesses that they will not be disadvantaged.

What is the UK CBAM rate?

The UK CBAM rate will apply per tonne of embodied emissions attributed to the CBAM goods. This rate will vary by sector and will be published at the start of each CBAM quarter to allow alignment with the UK ETS market price.

After accounting for adjustments, exemptions, and free allowances, the UK CBAM rate will be comparable to the carbon price paid by UK producers.

Any changes in existing carbon pricing and adjustment policies will be reflected in the UK CBAM rate.

The government has confirmed they will continue with the proposal for the UK CBAM rate to reflect the UK ETS, CPS, and free allowances, the domestic pricing mechanisms expected to be in place for 2027. As the UK ETS and CPS place a carbon price on indirect emissions, the UK CBAM will reflect these costs.

To recognise the importance of accurately tracking the UK ETS price and ensuring a deliverable and useable system of rates for tax returns, the UK CBAM rate will be set quarterly. The government is also considering how to adjust the UK CBAM rate for free allowances.

What’s next for the government and the UK CBAM?

1. HMRC and HMT will establish a CBAM industry working group to engage with stakeholders from sectors and industries most affected by the UK CBAM.
2. The government will also introduce a UK CBAM international group to engage with other governments whose exporters have a keen interest in the functioning of the UK CBAM.
3. HMRC intends to publish drafts of all primary and secondary legislation before introducing them to Parliament to allow stakeholders to review and ensure they meet the policy’s intent.
4. HMRC will also develop a comprehensive communications package and detailed guidance to support liable persons with their compliance and for overseas operators and verifiers to support the liable person in meeting these new requirements.
5. The government will continue to keep all areas of the UK CBAM design and implementation under review while engaging with interested stakeholders.

How to prepare your company for the UK CBAM’s impact

What do I do if the UK CBAM affects me?

• Read the government’s response to the policy design consultation.
• Read the government’s fact sheet to understand the impact on your business, the designation of responsibility, and your reporting obligations.
• Start engaging with your suppliers early to plan how to gather emissions data. Being proactive will put you in control of the situation.

A proactive approach to adapting to UK CBAM will reduce operational risks and strategically position businesses in a carbon-conscious economy. By preparing now and staying informed about developments, companies can effectively navigate challenges and seize opportunities arising from these regulatory changes.

Contact us to explore how EazyStock can help streamline your inventory management amidst changing regulatory landscapes like the UK CBAM.