UK’s impending new import tax is more than just hot air: Sally Appleton

CBAM is due to come into effect on January 1 2027 and will see an additional tax added to a wide range of imported products including aluminium, steel, cement, fertiliser, iron and hydrogen.

Ceramics and glass products will not be in scope of UK CBAM from 2027, as had initially been proposed, but they could be considered for future inclusion.

The UK CBAM will affect goods that are imported from countries with either no carbon price or one that is lower than in the UK. The tax will be based on the carbon emissions generated during production, adjusted to reflect the gap between the carbon price applied in the country of manufacture and the carbon price that is applied in the UK.

This is part of a global approach to addressing carbon emissions, with most major economies now taking steps to decarbonise, as well as the UK committing to reach net zero by 2050.

It is also an extension of the government introducing other rules and regulations, such as the UK Emissions Trading Scheme (UK ETS), which incentivises businesses to decarbonise by imposing a cost on carbon emissions. However, imported goods are not subject to the UK ETS, which can lead to variances in carbon pricing across the UK market.

With domestic emission regulations getting tougher, emission intensive companies may look to shift their operations to countries with more relaxed emissions laws. This will lead to ‘carbon leakage’ which remains a big piece in the puzzle when it comes to reaching global net zero targets.

A co-ordinated international approach is needed to mitigate carbon leakage, but this will take time, and this is another reason the government is introducing the CBAM, which follows the EU’s CBAM which came into force in 2023, albeit with no financial obligations until January 2026.

Based on the draft UK legislation and accompanying explanatory notes published earlier this year, ‘CBAM goods’ will be identified by commodity codes and crucially CBAM will only apply to products imported for business reasons, with any goods imported for non-business purposes unaffected.

Importantly, CBAM liability will be calculated by reference to direct, indirect and select precursor product emissions, referred to as embodied emissions in CBAM goods.

HMRC will then set a CBAM rate for each affected sector based on the effective carbon price in the UK. The aim is to ensure that imported goods are subject to a carbon price comparable to that incurred in UK production.

When it comes to calculating CBAM liability, businesses will either use independently verified data on the actual emissions embodied within CBAM goods or use default values set per product by the government. Businesses that are liable to the CBAM will need to submit CBAM returns for each prescribed accounting period.

The introduction of UK CBAM clearly present challenges for those that import or use the affected products and we’re already working with businesses to review goods currently being imported and assess CBAM registration, calculation of CBAM liability and reporting requirements.

We are also supporting affected businesses to consider the impact of the additional reporting requirements, and the associated costs, and plan accordingly. It’s likely that businesses may wish to consider reviewing supply chain models to mitigate potential CBAM liability, but that will take time, and the clock is already ticking. If your business may be affected, the time to start preparing is now.

Sally Appleton is a partner and head of the Yorkshire office at independent accounting firm Saffery.