UK CBAM 2027: Draft Secondary Legislation Published — Here Is What It Meansfor Your Business

The UK's Carbon Border AdjustmentMechanism has moved from policy announcement to draft law.

On 10 February 2026, HMRCpublished the first tranche of draft secondary legislation for the UK CBAM,alongside a public technical consultation that closed on 24 March 2026. Withthe UK CBAM due to take effect on 1 January 2027, this marks the point at whichbusinesses must move from monitoring the situation to actively preparing forit.

This article sets out what thedraft legislation contains, what it means in practice for UK importers, and thekey decisions businesses should be making now.

Background: where the UK CBAM stands today

The UK government confirmed on 30October 2024 that a Carbon Border Adjustment Mechanism would be introduced on 1January 2027. The CBAM will place a carbon price on specified goods importedinto the UK from sectors considered at risk of carbon leakage — where domesticdecarbonisation efforts risk simply pushing emissions overseas.

Primary legislation for the UKCBAM was introduced in the Finance (No. 2) Bill 2025–2026. The primarylegislation establishes the core legal framework. The secondary legislationpublished in February 2026 fills in the operational detail — the registrationrequirements, the calculation methodology, the record-keeping obligations, andthe tax administration framework.

A second tranche of secondarylegislation is expected in Spring 2026, with a further consultation. Thegovernment intends to finalise all secondary legislation later in 2026, aheadof the January 2027 start date. HMRC has committed to publishing comprehensiveguidance ahead of 2027.

Which sectors and goods are in scope

The UK CBAM will apply to importedgoods from five sectors:

•      Aluminium

•      Cement

•      Fertilisers

•      Hydrogen

•      Iron and steel

Within each sector, CBAM appliesonly to specified goods, identified by commodity code. The glass and ceramicssectors, which were originally proposed for inclusion, will not be in scopefrom 2027.

Direct emissions embedded in theimported goods are in scope from day one. Indirect emissions — those arisingfrom electricity used in production — have been delayed until 2029 at theearliest. This differs from the EU CBAM, which includes indirect emissions forcement and fertiliser sectors.

What the draft secondary legislation covers

The February 2026 draft secondarylegislation comprises three sets of regulations and an associated notice withthe force of law.

Administrative Provisions Regulations

These cover the operationalmechanics of the tax: the information required to register with HMRC for CBAM,the format and content of CBAM tax returns, weight measurement rules for CBAMgoods, record-keeping requirements, and reimbursement arrangements.

CBAM Rate Calculation and Carbon Price Relief Regulations

These establish how the CBAMcharge is calculated and how businesses can claim relief for carbon pricesalready paid in the country where their goods were produced. This Carbon PriceRelief mechanism prevents double-charging where an overseas producer hasalready paid a domestic carbon price equivalent.

Transitory Provisions Regulations

These set out the rules governingthe transition into the new regime from 1 January 2027.

The registration threshold

Importers must register with HMRCfor CBAM if they meet or exceed a minimum annual liability threshold of£50,000. HMRC applies both a forward-looking test (based on expected futureimports) and a backward-looking test (based on past imports) to determinewhether registration is required.

Where an importer fails toregister when they should, HMRC has the power to compulsorily register them andassess for the tax due. Ignorance of the obligation is not a defence.

How the CBAM rate is calculated

The UK CBAM rate is calculatedquarterly, based on the UK Emissions Trading Scheme carbon price, adjusted for:

•      Embedded emissions in thespecific imported goods

•      A Free AllocationAdjustment, reflecting the free allowances still available to UK domesticproducers under the UK ETS. This ensures importers are not penalised for acarbon cost that domestic producers are not yet fully bearing themselves. Freeallocation will be phased out over nine years beginning in 2027.

•      Carbon Price Relief foreligible carbon prices already paid in the country of production.

A trial CBAM rate will bepublished in Q4 2026 — one quarter before CBAM commences — to allow businessesto model their expected liability ahead of the January 2027 start date.

The first CBAM accounting periodruns from 1 January 2027 to 31 December 2027. The filing deadline for the firstCBAM return, and the deadline for paying any liability due, is 31 May 2028.

How is UK CBAM different from EU CBAM?

Both mechanisms share the samepolicy objective — preventing carbon leakage — and cover broadly the samesectors. But they operate quite differently in practice.

The EU CBAM works through acertificate mechanism: importers purchase CBAM certificates priced at the EUETS allowance price, and surrender them annually to cover embedded emissions.Compliance is managed through EU National Competent Authorities.

The UK CBAM operates more like atax return. Importers register with HMRC, file an annual return declaring theirCBAM liability, and pay accordingly. There are no certificates to purchase.This distinction matters significantly for how businesses structure theirinternal compliance processes.

What you should do now

Regardless of whether youresponded to the HMRC consultation, every importer of in-scope goods should betaking these steps:

Identify your exposure

Which of your imported goods fallwithin the UK CBAM commodity codes? What is the approximate embedded emissionsintensity of those goods? Run an initial scoping exercise if you have notalready.

Map your supply chain data

The UK CBAM will require you toknow the embedded emissions in the goods you import. Start the conversationwith your overseas suppliers now — obtaining verified data takes time, and theverification process requires third-party audit.

Establish internal ownership

CBAM sits at the intersection ofprocurement, finance, compliance, and operations. Designate a responsible owneracross those functions before the regulatory pressure arrives. Decisions madelate — particularly around supplier data collection — are significantly moreexpensive than those made early.

Build a records management process

The draft regulations set outdetailed record-keeping requirements. UK importers must retain importdocumentation, customs declarations, and emissions data. Begin capturing andorganising this now for imports that will occur in 2027.

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