UK Carbon Border Adjustment Mechanism

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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The UK government will in 2027 introduce a new carbon border adjustment mechanism, called UK CBAM, that will affect manufacturing businesses importing certain goods into the country. This is yet another environmental requirement for importers, sitting alongside plastic packaging tax and the extended producer responsibility for packaging which are already in force to reduce the UK’s carbon footprint.

UK CBAM will effectively be another tax on imported goods with a high carbon production footprint designed to eliminate what is called ‘carbon leakage’ that undermines efforts by the UK government to limit global warming.

Carbon leakage occurs when production is moved to other countries with differing levels of decarbonisation, pricing and regulation. Countries around the world are exploring similar carbon border taxes, with the EU introducing a scheme in October 2023.

UK CBAM will apply to aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel sectors. It has been largely welcomed by manufacturing businesses as it will create a level playing field ensuring UK businesses are not undercut by cheaper products from countries with less stringent environmental protections.

The product list affected by the UK CBAM is wider than that of the EU CBAM which was introduced (for reporting purposes only) on 1 October 2023. UK businesses importing aluminium, cement, iron, steel and fertiliser products into the EU should already by reporting under CBAM, with the first returns due this month.

How will it work?

The decision to introduce UK CBAM follows an extensive consultation, with a further consultation planned later this year on its design and detail. It is hoped that the mechanism to calculate the UK CBAM will be simpler than its EU cousin.

We do, however, know that the tax to be applied will depend on the intensity of greenhouse emissions of the imported goods and the gap between the carbon price applied in the country of production and its equivalent in the UK. The CBAM liability will rest directly with the importer and will not involve the purchase of trading or emission certificates.

UK CBAM will apply to Scope 1 emissions (those that relate directly to activities owned and controlled by a business) and Scope 2 emissions (those relating to the energy consumption of a business) and will work alongside the current Emissions Trading Scheme.

We will keep a close eye open for the next consultation and details of how the scheme will operate and provide regular updates on its likely impact.

Do you need extra information?

Ruth Corkin - Prinicipal - VAT and Indirect Tax Advisory at Hillier Hopkins

Ruth has been involved with VAT for over 30 years. She started her VAT career as a Customs and Excise Officer in Essex and then moved into consultancy with a variety of well-known accountancy firms. She is well known in the VAT world and is the proud author of many articles and technical works.

Contact Ruth at or on +44 (0)1908 713860

Based at the following office - Milton Keynes, Watford and London