Yet another business tax to deal with – A pain in the CBAM? 

Whether we agree with it or not, the UK government is committed to reaching ‘net zero’ by 2050 and we are continuing to see this shape government policy and tax legislation.

Since 2005 many of the UK’s largest businesses have been subject to a scheme called ETS (Emissions Trading Scheme) which requires participants to obtain allowances to cover their carbon emissions. While the scheme is intended to incentivise emission reductions, it has also raised concerns about competition from imported goods produced in countries where similar carbon costs do not apply.

The CBAM (Carbon Border Adjustment Mechanism) is supposed to level the playing field by taxing emissions on imports. CBAM will apply from 1 January 2027 although the first return and payment will not be due until 31 May 2028. Returns will be due quarterly thereafter.

The issue for SMEs is that ETS is restricted to very large companies whereas the CBAM applies to all companies which import over £50k of relevant goods per year. This can start to impact on SME’s very quickly either directly through their own liability to CBAM on imports or through increased supplier prices. Fertiliser is one of the targeted sectors and farmers are already noting the anticipated increased prices – so much so that it was mentioned in the latest series of Clarkson’s Farm.

The sectors currently impacted by CBAM are:

• Aluminium
• Iron & Steel
• Cement
• Fertiliser
• Hydrogen

The good news is that currently the CBAM only impacts very specific imports and HMRC have published a defined list of commodity codes to which the CBAM applies which can be found here. It is not clear when and if further imported goods will be brought under scope.

Businesses should consider whether they are likely to be impacted by the CBAM either directly or indirectly and put systems in place to ensure that the correct returns are made and tax paid, where appropriate, and/or that supplier price increases are factored into budgets and pricing decisions.

If you’d like to discuss whether CBAM could affect your business, please speak to your usual Burgis & Bullock contact or emma.fisher@burgisbullock.com

Emma Fisher, Senior Corporate Tax Manager at Burgis & Bullock