Listen now to better prepare your business for CBAM.
CBAM is more than a tax issue, it’s a data challenge. When UK CBAM comes into effect on 1 January 2027, businesses will need reliable emissions data to calculate their liability. But what happens when your suppliers can’t provide accurate or verified data? In our latest podcast, Abhay and James explore the two approaches available to businesses, they look at the cost, accuracy and practical challenges of each approach, and what businesses should be considering now.
Listen now to better prepare your business for CBAM.
Transcript
James: Welcome to today's podcast. My name is James Camidge and I am a solicitor in the regulatory team at Weightmans. We're discussing a topic that's generating significant attention across manufacturing, construction and transport sectors: the Carbon Border Adjustment Mechanism, commonly known as CBAM. Joining me today is Abhay Srivastava, Partner and Head of ESG at Weightmans, who has been advising organisations on both UK and EU CBAM developments. The topic we're discussing today focuses on the commercial implications of the emerging CBAM regimes. Abhay, thanks for joining.
Abhay: Thank you, James. It's great to be here.
James: There's certainly a lot of noise around CBAM at the moment. Before we get into the detail, what's the one message businesses should take away?
Abhay: The biggest message is: don't panic, but don't wait. CBAM isn't just an environmental compliance exercise. It's becoming a tax, supply chain and procurement issue. The organisations that start preparing now will be in a much stronger position when reporting and payment obligations begin.
James: We know that the UK CBAM regime is established under the Finance Act 2026 and will be administered by HMRC as a direct tax. But let's start with the basics. What exactly is UK CBAM and what does it mean in practice?
Abhay: In simple terms, UK CBAM is a carbon-based import tax designed to prevent what policymakers call "carbon leakage". That is where businesses shift production, or source goods, from jurisdictions with stronger carbon pricing rules to countries where the carbon cost of manufacturing is lower or not priced at all. The policy aim is to make sure that imported goods carry a carbon cost that is broadly comparable to goods produced in the UK, so domestic manufacturers are not placed at a competitive disadvantage simply because they are subject to UK carbon pricing. In practice, businesses importing certain carbon-intensive goods into the UK will need to determine whether those goods fall within scope, calculate the embedded emissions associated with them and account for any CBAM liability. So, although it is often described as an environmental measure, it is really a cross-functional compliance issue involving tax, customs, procurement, legal and sustainability teams.
James: And that's different from the EU model?
Abhay: Yes. The EU uses a certificate trading model, whereas the UK has chosen a straightforward tax approach. While the objectives are similar, the practical compliance requirements differ.
James: Many businesses are now trying to understand whether UK CBAM applies to them. What are the key points they should consider when assessing whether their imports fall within scope?
Abhay: The first thing to understand is that CBAM does not apply to every imported product. The UK regime is currently focused on aluminium, cement, fertilisers, hydrogen, iron and steel. Businesses need to review the commodity codes associated with imported products and compare them against the official CBAM product list.
James: So the starting point is understanding what you're importing?
Abhay: Exactly. Build a register of imported products, identify the relevant commodity codes and determine whether those products fall within the CBAM scope. That's the critical first step.
James: The presentation refers to a £50,000 threshold. Why is that important?
Abhay: A business becomes potentially in scope when the value of relevant CBAM imports exceeds £50,000 over a rolling twelve-month period. What's important is that the threshold relates to the value of the imported goods themselves, not the amount of CBAM tax payable.
James: That's a subtle but important distinction.
Abhay: Absolutely. Some businesses may assume they are well below the threshold because their anticipated tax liability is low, but that's not how the legislation works.
James: The next question is often: who is actually responsible for CBAM within the supply chain?
Abhay: That's one of the most important commercial questions. Not every company involved in a transaction will be liable. Businesses need to review customs declarations, Incoterms and contractual arrangements to determine who is acting as the importer for CBAM purposes.
James: So responsibilities need to be clearly documented?
Abhay: Definitely. Organisations should establish a clear allocation of CBAM responsibility throughout the supply chain and ensure contracts reflect those responsibilities.
James: Are there any exemptions businesses should know about?
Abhay: Yes. Goods with a verified UK place of origin are exempt. Certain scrap metal products are excluded, and there are provisions for temporary admissions and some non-commercial or personal imports. Businesses should actively review import flows to identify available exemptions and maintain supporting evidence.
James: One of the most interesting slides focuses on data. Why is this becoming such a major challenge?
Abhay: Because CBAM is fundamentally about emissions data. Organisations will need information from suppliers regarding manufacturing emissions associated with imported products. From 1 January 2027, businesses will need to begin collecting relevant emissions data.
James: And there are two approaches?
Abhay: Correct. Businesses can either use actual verified emissions data or default values provided by Government. The concern is that default values are generally expected to be significantly more expensive than verified actual emissions data.
James: Meaning the easy option may become the costly option.
Abhay: Exactly.
James: What should organisations be doing with suppliers right now?
Abhay: Start the conversation immediately. Businesses should request information about country of origin, traceability and any carbon pricing already paid in the country of production. Contracts may also need updating to ensure suppliers provide accurate information on time and to address liability allocation.
James: So procurement teams become central to compliance?
Abhay: Very much so. This isn't just an ESG issue. Procurement, finance, customs, tax and legal teams all need to be involved.
James: What happens if a business chooses to report actual emissions?
Abhay: They'll need robust evidence and independent verification. Verification requirements include accredited bodies operating to recognised international standards. Importers must be able to demonstrate the reliability of emissions information throughout the supply chain.
James: Let's talk about cash flow because that caught my attention.
Abhay: It's a significant issue. Data collection starts in January 2027. Registration is expected by January 2028, the first return is due in May 2028, and the first payment deadline falls in July 2028. This creates a situation where organisations could face liabilities covering approximately fifteen months within a relatively short period. Businesses should start forecasting and budgeting well in advance.
James: What are the enforcement risks?
Abhay: HMRC is expected to align penalties with the VAT points regime, and businesses will need to retain records for six years. Importers should maintain detailed records relating to commodity codes, origin, value, weight and supporting verification evidence. Fraudulent evasion may also trigger criminal consequences.
James: Many companies operate across both the UK and EU. What are the big differences?
Abhay: The EU system became operational in January 2026, while the UK system starts in January 2027. The EU relies on certificates, whereas the UK uses a direct tax model. Another difference is reporting frequency, with the UK proposing quarterly reporting obligations once the regime is fully operational.
James: And is there a risk of paying twice?
Abhay: Potentially, but the UK has proposed Carbon Price Relief mechanisms where qualifying carbon costs have already been paid in another jurisdiction. Businesses should identify opportunities to claim those reliefs and ensure they maintain supporting documentation.
James: If you could leave listeners with three practical actions, what would they be?
Abhay: First, understand whether your imports are in scope. Second, engage suppliers now to begin gathering emissions and traceability information. Third, establish governance. Assign accountability across tax, finance, procurement, customs and sustainability functions so that the organisation is ready when reporting begins.
James: Excellent advice.
James: Thank you, Abhay, for joining us today and helping demystify what is undoubtedly one of the most significant trade and carbon compliance developments facing businesses.
For listeners, the key takeaway is that CBAM is not just another sustainability requirement. It has real implications for procurement, contracts, reporting, tax and cash flow planning.
Thanks for listening, and we'll see you next time.
