From draft to delivery: HMRC confirm the framework for UK CBAM

Regulation 1: CBAM rate and carbon price relief

The first new regulation provides the formal mechanism for HM Treasury to calculate and fix the CBAM rate. In effect, it translates the policy intent – that CBAM equalises the carbon price borne by UK production and imports – into an operational rule. Key features include:

• A structured approach for setting the CBAM rate by reference to the prevailing UK carbon price (e.g. UK ETS allowance prices and any other relevant UK carbon pricing instruments); and
• A framework for relief where a carbon price has already been paid in another jurisdiction on the same embedded emissions. This prevents double pricing and is essential to maintaining WTO compatibility and fairness.

Critically, the regulation sets out the basis on which importers can:

• Calculate and evidence foreign carbon prices borne by CBAM goods;
• Claim relief against their UK CBAM liability, subject to conditions; and
• Rely on independent verification of the carbon price information supplied.

This is where the Carbon Pricing Verification Form comes into play. HMRC have published a standard form that independent verifiers must complete when confirming carbon price information. The form is central to the credibility of relief claims: it defines the minimum information and assurance standard expected, and will be a key document in any HMRC review of CBAM returns involving foreign carbon price relief.

For importers, the practical implications are clear:

• You will need to engage suppliers and, where relevant, local verifiers well ahead of CBAM go‑live to obtain robust documentation of carbon prices paid;
• Carbon price data will need to be traceable, consistent and independently verified in line with HMRC’s form and guidance; and
• Internal systems should be capable of linking verified foreign carbon price information to specific CBAM consignments and emissions calculations.

Regulation 2: CBAM administration – registration, returns and penalties

The second regulation sets out the administrative framework for CBAM, in close coordination with associated legislation adjusting registration deadlines, accounting periods, payment dates and penalties. It covers, among other things:

• Registration requirements – who must register for CBAM, when, and how, including the link to customs and existing tax registrations where relevant;
• Return filing – the form and content of CBAM returns, the reporting of embedded emissions and CBAM liability, and the treatment of relief for foreign carbon prices within the return;
• Record keeping – the types of records CBAM importers must maintain (e.g. emissions calculations, supplier data, verification reports, customs entries and payment records) and minimum retention periods;
• Reimbursements and adjustments – processes for correcting returns, reclaiming overpaid CBAM, and dealing with post‑import changes in emissions or relief information; and
• Compliance and penalties – consequences of late registration, late filing, non‑payment or inadequate documentation, aligned with wider HMRC penalty regimes.

Systems Boundaries Reference Document

A crucial piece of the July package is the Systems Boundaries Reference Document, which defines the production processes and emissions sources that must be taken into account when calculating the embodied emissions of CBAM goods.

This document gives technical clarity on questions such as:

• Which process steps are included within the system boundary (e.g. raw material production, intermediate processing, on‑site energy use, certain upstream emissions)?;
• Which emissions sources must be captured and which can be excluded, under what conditions; and
• How to treat complex products and multi‑stage supply chains, and how to apply default or fallback values where primary data is unavailable.

For importers, this is the roadmap for structuring data requests to suppliers and for designing internal calculators or tools. Emissions data that fall outside the defined system boundaries are unlikely to be acceptable for CBAM purposes, and incomplete coverage of required emissions sources may lead to reliance on conservative default values – and potentially higher CBAM liabilities.

HMRC guidance: tying the framework together

Alongside the regulations, HMRC have published supporting guidance to enable practical compliance, including:

• CBAM registration guidance – detailing who must register, timing, transitional rules and interaction with existing registrations;
• Record-keeping guidance – specifying the documentation and data that must be retained to support CBAM calculations, relief claims and returns; and
• Guidance on claiming carbon price relief – explaining the conditions, evidential thresholds and verification requirements for recognising foreign carbon prices in CBAM calculations.

These materials should be read together with the Carbon Pricing Verification Form and the Systems Boundaries Reference Document, as they collectively define HMRC’s expectations of ‘good CBAM compliance’.

What should importers do now?

With final regulations and guidance now published, the window for preparation is narrow. In outline, importers should:

• Confirm CBAM product scope for their portfolios and map CBAM goods to supply chains;
• Engage suppliers to obtain emissions data consistent with the Systems Boundaries Reference Document, and to explore verification arrangements for any carbon prices paid overseas;
• Design or adapt systems to capture, store and link emissions and carbon price data to customs entries and CBAM returns;
• Review governance and controls, including roles and responsibilities, assurance over data quality, and readiness for HMRC enquiries; and
• Plan for January 2027 go‑live, including testing CBAM calculations and return processes before the first CBAM accounting period.

The direction of travel is now clear: UK CBAM will be operational from 1 January 2027, and HMRC have set out the detailed rules that will apply. For further discussion of how these regulations and guidance may affect your business, and how technology can support UK CBAM readiness, please speak to the authors or your usual KPMG in the UK contact.

For further information please contact:

• Barbara Bell
• Jenna Glass