UK CBAM 2027: Draft Secondary Legislation Published — Here Is What It Means for Your Business
The UK's Carbon Border Adjustment Mechanism has moved from policy announcement to draft law.
On 10 February 2026, HMRC published the first tranche of draft secondary legislation for the UK CBAM, alongside a public technical consultation that closed on 24 March 2026. With the UK CBAM due to take effect on 1 January 2027, this marks the point at which businesses must move from monitoring the situation to actively preparing for it.
This article sets out what the draft legislation contains, what it means in practice for UK importers, and the key decisions businesses should be making now.
Background: where the UK CBAM stands today
The UK government confirmed on 30 October 2024 that a Carbon Border Adjustment Mechanism would be introduced on 1 January 2027. The CBAM will place a carbon price on specified goods imported into the UK from sectors considered at risk of carbon leakage — where domestic decarbonisation efforts risk simply pushing emissions overseas.
Primary legislation for the UK CBAM was introduced in the Finance (No. 2) Bill 2025–2026. The primary legislation establishes the core legal framework. The secondary legislation published in February 2026 fills in the operational detail — the registration requirements, the calculation methodology, the record-keeping obligations, and the tax administration framework.
A second tranche of secondary legislation is expected in Spring 2026, with a further consultation. The government intends to finalise all secondary legislation later in 2026, ahead of the January 2027 start date. HMRC has committed to publishing comprehensive guidance ahead of 2027.
Which sectors and goods are in scope
The UK CBAM will apply to imported goods from five sectors:
• Aluminium
• Cement
• Fertilisers
• Hydrogen
• Iron and steel
Within each sector, CBAM applies only to specified goods, identified by commodity code. The glass and ceramics sectors, which were originally proposed for inclusion, will not be in scope from 2027.
Direct emissions embedded in the imported goods are in scope from day one. Indirect emissions — those arising from electricity used in production — have been delayed until 2029 at the earliest. This differs from the EU CBAM, which includes indirect emissions for cement and fertiliser sectors.
What the draft secondary legislation covers
The February 2026 draft secondary legislation comprises three sets of regulations and an associated notice with the force of law.
Administrative Provisions Regulations
These cover the operational mechanics of the tax: the information required to register with HMRC for CBAM, the format and content of CBAM tax returns, weight measurement rules for CBAM goods, record-keeping requirements, and reimbursement arrangements.
CBAM Rate Calculation and Carbon Price Relief Regulations
These establish how the CBAM charge is calculated and how businesses can claim relief for carbon prices already paid in the country where their goods were produced. This Carbon Price Relief mechanism prevents double-charging where an overseas producer has already paid a domestic carbon price equivalent.
Transitory Provisions Regulations
These set out the rules governing the transition into the new regime from 1 January 2027.
The registration threshold
Importers must register with HMRC for CBAM once the value of their imports of CBAM goods reaches £50,000. The threshold is a value of imports, not an amount of CBAM liability. HMRC applies a forward-looking test (imports expected in the next 30 days) and a backward-looking test (imports over the previous 12 months, counted from 1 January 2027) to decide whether registration is required.
Where an importer fails to register when they should, HMRC has the power to compulsorily register them and assess for the tax due. Ignorance of the obligation is not a defence.
How the CBAM rate is calculated
The UK CBAM rate is calculated quarterly, based on the UK Emissions Trading Scheme carbon price, adjusted for:
• Embedded emissions in the specific imported goods
• A Free Allocation Adjustment, reflecting the free allowances still available to UK domestic producers under the UK ETS. This ensures importers are not penalised for a carbon cost that domestic producers are not yet fully bearing themselves. Free allocation will be phased out over nine years beginning in 2027.
• Carbon Price Relief for eligible carbon prices already paid in the country of production.
A trial CBAM rate will be published in Q4 2026 — one quarter before CBAM commences — to allow businesses to model their expected liability ahead of the January 2027 start date.
The first CBAM accounting period runs from 1 January 2027 to 31 December 2027. The filing deadline for the first CBAM return, and the deadline for paying any liability due, is 31 May 2028. From 2028, returns move to a quarterly cycle.
How is UK CBAM different from EU CBAM?
Both mechanisms share the same policy objective — preventing carbon leakage — and cover broadly the same sectors. But they operate quite differently in practice.
The EU CBAM works through a certificate mechanism: importers purchase CBAM certificates priced at the EU ETS allowance price, and surrender them annually to cover embedded emissions. Compliance is managed through EU National Competent Authorities.
The UK CBAM operates more like a tax return. Importers register with HMRC, file a CBAM return declaring their liability (annual for 2027, then quarterly from 2028), and pay accordingly. There are no certificates to purchase. This distinction matters significantly for how businesses structure their internal compliance processes.
What you should do now
Regardless of whether you responded to the HMRC consultation, every importer of in-scope goods should be taking these steps:
Identify your exposure
Which of your imported goods fall within the UK CBAM commodity codes? What is the approximate embedded emissions intensity of those goods? Run an initial scoping exercise if you have not already.
Map your supply chain data
The UK CBAM will require you to know the embedded emissions in the goods you import. Start the conversation with your overseas suppliers now — obtaining verified data takes time, and the verification process requires third-party audit.
Establish internal ownership
CBAM sits at the intersection of procurement, finance, compliance, and operations. Designate a responsible owner across those functions before the regulatory pressure arrives. Decisions made late — particularly around supplier data collection — are significantly more expensive than those made early.
Build a records management process
The draft regulations set out detailed record-keeping requirements. UK importers must retain import documentation, customs declarations, and emissions data. Begin capturing and organising this now for imports that will occur in 2027.