Expert urges companies to begin data collection, supply-chain mapping, and emissions reporting preparations immediately
An indirect tax expert has warned that yesterday’s Budget offers “reassurance on timing but concerning gaps in detail” around the UK’s Carbon Border Adjustment Mechanism (CBAM), which will have major cost implications for importers of goods including timber, cement and steel.
The Government confirmed it will press ahead with implementation of the new rules from 1 January 2027 but announced delays and potential scope changes that leave businesses unclear about long-term compliance demands.
Craig Stobo, a Partner with indirect tax specialists VITA who advises UK and international firms on CBAM readiness, described the update as “a mixed picture” for importers, carbon-intensive manufacturers, and supply-chain-exposed sectors such as construction, agriculture and heavy industry.
He said: “The Government has reaffirmed its commitment to a 2027 start date. That clarity is welcome, it shows there’s no rowing back on CBAM and businesses must assume the clock is still ticking.
“Firms that have been waiting for signals from Westminster now have confirmation that they must start preparing in earnest.”
The scheme aims to equalize the difference in carbon prices levied on high-emission products from EU and non-EU manufacturers. Affected companies must gain an in-depth understanding of suppliers outside the EU from whom they procure CBAM-related goods and gather accurate emissions data.
In a significant move, the inclusion of indirect (Scope 2) emissions in the UK CBAM has been pushed back to 2029 or later.
Craig said: “This delay is surprising and appears out of step with the EU, despite the UK’s stated aim of close alignment. There may be practical reasons, indirect emissions are harder to calculate and would impose a heavy data burden on businesses and HMRC alike, but the decision still weakens the UK scheme in the short term.”
He added that the exclusion of Scope 2 emissions will reduce the amount of CBAM payable by importers at a time when the UK carbon price is widely expected to rise sharply due to alignment with the EU trading system and the phase-out of free allowances.
The Budget also revealed that the Government is exploring the feasibility of adding refined oil and fuel products to the CBAM in future.
Said Craig: “This is the first sign that the scope of the UK CBAM could widen over time. I would expect a consultation to follow. It reinforces the direction of travel: today’s measures are only the beginning.”
The OBR now projects that while carbon prices will increase over the next five years, overall CBAM revenues will fall compared to previous forecasts, dropping by £180m by 2028–29, because of the removal of indirect emissions from scope.
In Craig’s view, “This reinforces the view that the Government is taking a gradualist approach, softening the initial burden on businesses and mitigating near-term inflationary pressure.
“The big question is whether this approach remains compatible with the EU’s trajectory, and how closely aligned the two systems need to be for interoperability to function in practice.”
Going on to warn that yesterday’s “interim” CBAM announcements should not lull businesses into complacency, he added: “The Budget may look generous, but CBAM is still coming and this is just the precursor to far more stringent requirements.
“Over time there will be less carrot and more stick. Businesses that prepare now will gain a clear competitive advantage; those that delay risk higher costs, penalties, and barriers to the EU single market.”
He urged companies to begin data collection, supply-chain mapping, and emissions reporting preparations immediately, emphasising that professional guidance will be essential.
Craig Stobo is a Partner of VITA, a Glasgow-headquartered indirect tax and VAT consultancy.
