Navigating the UK CBAM: publication of draft primary legislation

Draft primary legislation has been published for the UK Carbon Border Adjustment Mechanism (“UK CBAM”), set to be introduced on 1 January 2027. 

The UK CBAM, which follows the introduction of a CBAM in the EU, will place a carbon price on specific goods imported to the UK from the aluminium, cement, fertiliser, hydrogen, and iron and steel sectors.  For an introduction to the topic, please see Freeths’ earlier article here.

In collaboration with CarbonChain, we set out the key takeaways from the draft legislation and practical steps that companies should take now to prepare for the introduction of the UK CBAM. We're also hosting a joint webinar on this topic on 5 June 2025 should you wish to learn more about these changes.

Background

Following a consultation in October last year on the policy design and administration for the UK CBAM, on 24 April 2025, HMRC released draft primary legislation for the UK CBAM for consultation. The consultation aims to gather feedback to ensure the draft legislation delivers the desired policy correctly and effectively.  The consultation closes on 3 July 2025.

While the draft legislation may be subject to change following the consultation, the draft is (1) a good indication that the government is committed to introducing the UK CBAM on 1 January 2027, and (2) helpful confirmation of the regime’s key parameters.  However, important details, such as how embodied emissions in CBAM goods will need to be determined, evidenced and verified, will be set out in secondary and tertiary legislation, which is yet to be published.

The draft legislation, and accompanying policy update and high-level factsheet, confirmed the following:  

1. The person liable for CBAM is the ‘importer’: The ‘importer’ is the person in whose name the customs declaration is made, and where it is made on behalf of another person, the importer is the person on whose behalf the declaration is made.
2. Registration for CBAM: A person must register with HMRC for CBAM when the total value of CBAM goods that it imports exceeds £50,000.  Importers must register if they reach this threshold either over the preceding 12-month period (the ‘backward looking test’), or are expected to reach the threshold over the subsequent 30 days (the ‘forward looking test’).
3. Calculation of the CBAM liability: The government has confirmed CBAM liability will be determined in three steps:
   • Determining UK CBAM liability - calculated by multiplying imported embodied emissions in a CBAM good by the ‘CBAM Rate’.  The ‘CBAM Rate’ will be a tax rate, calculated by HM Treasury, equivalent to the domestic price per tonne of emissions, taking into account any free allowances issued under the UK Emissions Trading Scheme (“UK ETS”). There will be a single CBAM rate per sector, which shall be updated each quarter;
   • Calculating any carbon price relief - the draft legislation allows for a reduction in the UK CBAM liability where the emissions embodied in CBAM goods have already been subject to charges under either a carbon tax, or another emissions trading scheme (secondary legislation will provide further details); and
   • Total CBAM Liability - the final CBAM liability that an importer is subject to is calculated by subtracting any carbon price relief from the UK CBAM liability.
4. Exemptions for Linked Emissions Trading Schemes: The draft legislation includes provisions which allow the Treasury to make regulations which exempt goods originating from jurisdictions that have arrangements to link their emissions trading schemes with the UK ETS.  If the UK ETS is ever linked to the EU ETS in the future, this provision will mean CBAM goods being imported from the EU to the UK could be excluded from the UK CBAM. 
5. Group Treatment: Administrative burdens will be simplified by allowing two or more connected liable persons to apply for group treatment.
6. Quarterly Accounting Periods: The first accounting period will be 12 months, from 1 January 2027 to 31 December 2027, with a five-month period for returns and payments (31 May 2028).  From 1 January 2028, CBAM accounting periods will shift to quarterly, with a two-month window for returns and payments.
7. Penalties: As well as penalties for e.g. failing to submit a CBAM return or to pay an amount which is due in respect of CBAM, Schedule 4 of the draft legislation sets out criminal offences for fraudulent evasion of CBAM, and fraudulent misstatement of CBAM.