UK CBAM Penalties: What Happens If You Miss the Deadline or Misreport
- Ahtesham Shaikh
- Jun 25
- 14 min read
UK CBAM launches on 1 January 2027, and with it comes one of the most consequential compliance regimes introduced for UK importers in recent years. The question most businesses ask — once they understand the registration and reporting obligations — is direct: what happens if we get this wrong?
The answer is a graduated but serious penalty structure, HMRC assessment powers that place the burden squarely on the importer, and — at the most severe end — criminal offences with the prospect of prosecution.
This article sets out exactly what the UK CBAM penalty regime looks like, why certain compliance failures carry disproportionate financial consequences, and what affected businesses should be doing now to avoid exposure.
What UK CBAM Requires — The Compliance Baseline
Before penalties can be properly understood, the obligations that trigger them must be clear. Under the Finance Act 2026, any business importing goods within UK CBAM's five covered sectors — aluminium, cement, fertilisers, hydrogen, and iron and steel — and meeting the £50,000 minimum registration threshold over a rolling 12-month period must:
Register with HMRC for UK CBAM
Keep full records of all CBAM goods imported
Submit a CBAM return for each accounting period
Report embodied emissions using either verified supplier data or government-published default values
Pay the CBAM charge, calculated by multiplying the applicable CBAM rate by embodied emissions, minus any deductible overseas carbon price already paid
The first accounting period runs for 12 months, from 1 January 2027 to 31 December 2027. Both the return and payment are due by 31 May 2028 — a five-month window designed to allow businesses time to gather verified emissions data, while giving HMRC time to complete system testing.
From 1 January 2028, the regime shifts to a quarterly accounting cycle, with returns and payments due on the last working day of the second month after each quarter ends.
Every one of these obligations — registration, record-keeping, return submission, emissions reporting, and payment — carries a corresponding penalty for non-compliance.
The UK CBAM Penalty Structure: Four Categories
UK CBAM penalties are not a single flat charge. They operate across four distinct categories, each with its own trigger, escalation mechanism, and severity level.
Non-Compliance Type | Mechanism | Legislative Basis |
Failure to register | Compulsory registration + HMRC best judgement assessment | Finance Act 2026 |
Late or missing return | Points-based system aligned with VAT penalty regime | HMRC Policy Update / Finance Act 2026 |
Late payment of CBAM charge | Percentage-based charges escalating from day 16 | HMRC / VAT late payment model |
Inaccurate return or misreporting | Best judgement assessment + potential surcharge | Finance Act 2026 |
Penalty Category 1: Failure to Register
Registration for UK CBAM becomes mandatory the moment a business meets the £50,000 threshold. Two tests apply simultaneously:
Forward-looking test: if a business expects to import £50,000 or more of CBAM goods in the next 30 days, it must register immediately
Backward-looking test: on the first day of each month, a business must check whether it has imported £50,000 or more of CBAM goods in the preceding 12 months
Ordinarily, registration must be completed within 30 days of becoming liable. During 2027 — the first year of CBAM — businesses have until 31 January 2028 to register, a transitional allowance that reflects HMRC's recognition of the complexity involved in year one.
Failing to register does not eliminate liability. HMRC has explicit power under the Finance Act 2026 to compulsorily register a non-compliant importer and issue a best judgement assessment for the tax due. That assessment is based on whatever data HMRC considers appropriate — estimates, comparison to similar goods, available customs records. The business bears the burden of challenging that assessment if it disputes the figure.
A general regulatory penalty also applies for administrative failures specifically tied to UK CBAM — such as failing to notify HMRC of a change in business address, or failing to notify that a business is being carried on by another person following death, incapacity, or insolvency.
Penalty Category 2: Late or Missing Return Submission
The government has confirmed that UK CBAM late submission penalties will align as closely as possible with the VAT penalty points system that has applied to VAT-registered businesses since 1 January 2023.
Under this model, each missed submission deadline earns a penalty point. Once a business reaches a threshold of accumulated points — determined by submission frequency — a £200 financial penalty is charged. Every subsequent late submission while at the threshold incurs a further £200 penalty.
For the first annual return (covering 2027, due by 31 May 2028), the annual submission frequency threshold under the equivalent VAT model is 2 points before a penalty charge is triggered. For quarterly submissions from 2028 onwards, the equivalent quarterly threshold is 4 points.
Key features of this system:
Points accumulate per submission obligation
A reasonable excuse defence is available for appeals
Points expire after 24 months if the taxpayer stays below the threshold
Once the threshold is reached, all points reset only after a period of fully compliant on-time submissions
Importantly, nil returns must still be submitted for each accounting period, even if a business has no CBAM liability that period. Failure to submit a nil return triggers the same point accumulation as any other missed deadline.
Penalty Category 3: Late Payment of the CBAM Charge
Late payment penalties for UK CBAM are set to mirror the VAT late payment regime — a structure that is percentage-based, escalates with time, and has no grace period beyond 15 days.
Days Overdue | Penalty |
Up to 15 days | No penalty |
Day 16 to day 30 | 3% of the outstanding amount at day 15 |
Day 31 onwards | Further 3% of the amount outstanding at day 30, plus a daily accrual at an annual rate of 10% on the outstanding balance |
To illustrate the scale: a business with a CBAM liability of £100,000 that pays 60 days late would face a first penalty of £3,000 (3% at day 15) plus a second penalty of £3,000 (3% at day 30), plus daily accrual at 10% per annum for the 30 days beyond day 30 — approximately a further £822. The longer the payment remains outstanding, the higher the total exposure.
Late payment interest also accrues separately from the penalty charges, running from the due date until the payment is received in full.
HMRC has confirmed it does not use penalties as a revenue mechanism — the purpose is deterrence. However, the escalation structure means delays accumulate rapidly and that businesses that simply miss a payment without communication with HMRC face the maximum charge.
A Time to Pay arrangement, agreed with HMRC before the 15-day point, can suspend or eliminate penalty charges while the arrangement remains in place.
Penalty Category 4: Inaccurate Returns and Misreporting
Misreporting under UK CBAM — whether through inaccurate emissions data, incorrect commodity codes, understated import weights, or errors in carbon price relief calculations — carries specific enforcement consequences under the Finance Act 2026.
Where a UK CBAM return is found to be incomplete or inaccurate, HMRC will issue a best judgement assessment of the tax due. This assessment replaces the return and becomes the binding figure of liability unless successfully challenged. The importer must then demonstrate that HMRC's assessment is wrong — not simply that an error was inadvertent.
The following table sets out the most common misreporting scenarios and their enforcement implications:
Misreporting Scenario | Enforcement Consequence |
Understated embodied emissions | HMRC assessment for full liability + potential surcharge |
Use of incorrect commodity codes | HMRC determination of correct classification |
Failure to maintain adequate records | General regulatory penalty + HMRC weight determination |
Inaccurate or missing carbon price relief claim | Reassessment of relief; risk of overstating deduction |
Misdescription of CBAM goods | Sanctions and penalties under Finance Act 2026 |
HMRC also retains powers to determine the weight of CBAM goods where correct records have not been kept or where the weight reported appears incorrect. That determination can involve estimates, comparisons to similar goods, or analysis of available import documentation — again placing the challenge burden on the business.
Record-keeping regulations will specify that records must be retained for up to six years and may prescribe the format and method of storage.
The Criminal Threshold: Fraudulent Evasion and Deliberate Misstatement
The most severe consequence of non-compliance with UK CBAM is prosecution under the criminal offences introduced by the Finance Act 2026 (Schedule 18). Two distinct offences apply:
Part 1 — Fraudulent Evasion of CBAMA person commits a criminal offence if they fraudulently evade the UK CBAM charge. This mirrors the treatment of fraudulent evasion under other indirect tax regimes and carries the risk of criminal prosecution.
Part 2 — Misstatement in Relation to CBAMA person commits a criminal offence if they:
Produce, provide, or make use of false documents with intent to deceive
Knowingly or recklessly make false statements in connection with UK CBAM
The inclusion of reckless misstatement — not just deliberate fraud — is significant. A business that submits emissions data it has not adequately verified, or that relies on supplier figures it has reason to doubt, could potentially face exposure under this provision even without explicit fraudulent intent.
Criminal proceedings under these provisions are governed by Part 3 of Schedule 18 of the Finance Act 2026, which applies the relevant proceedings rules from the Customs and Excise Management Act 1979.
The government has also introduced measures to deter artificial separation of business activities designed to circumvent CBAM. HMRC can issue directions where it suspects that business structures have been arranged specifically to fall below the £50,000 registration threshold or to avoid CBAM liability.
Additionally, UK CBAM has been added to the list of taxes covered by the Disclosure of Avoidance Schemes for VAT and Other Indirect Taxes (DASVOIT) rules — meaning that arrangements specifically designed to avoid CBAM may need to be disclosed to HMRC.
HMRC's Assessment Powers: What They Mean in Practice
One of the most practically important aspects of the UK CBAM enforcement framework is the breadth of HMRC's assessment powers. Where a business has failed to register or has submitted an inaccurate return,
HMRC does not simply wait for a corrected submission. It will:
Make a best judgement assessment of the amount of CBAM due
Issue formal notification of that assessment
Compulsorily register the business if it has not registered voluntarily
The business then has the right to appeal through HMRC's internal review process or to the First Tier Tax Tribunal. However, the starting point is HMRC's assessment — the importer must actively challenge it, supported by its own evidence.
This reversal of the burden matters most in sectors with complex supply chains and reliance on supplier-provided emissions data. A steel importer that cannot produce verification documentation for embedded emissions is not simply facing a gap in its paperwork. It is facing HMRC using default emissions figures — which are set deliberately high as a policy incentive — as the basis for a tax assessment.
HMRC's powers also extend to requiring information from third parties to verify compliance. Where a business fails to comply with an information requirement within the specified period (no less than 30 days from the notice), a penalty applies, escalating to up to £600 per day of continued non-compliance after notice of assessment has been issued.
Comparison: UK CBAM Penalties vs EU CBAM Penalties
Businesses importing into both the UK and EU markets face parallel but distinct penalty regimes. The differences are material.
Feature | UK CBAM | EU CBAM |
Primary penalty model | Points-based (aligned with VAT) | Per-tonne fine |
Non-surrender / non-payment penalty | Best judgement assessment + late payment % | €100 per tonne of CO₂ (indexed to inflation) |
Transitional phase penalties | No transitional phase for UK CBAM | €10–€50 per tonne during 2023–2025 |
Criminal offences | Yes — fraudulent evasion + deliberate misstatement | No direct criminal provision at EU level |
First annual deadline | 31 May 2028 (covering 2027) | 30 September 2027 (covering 2026) |
Regime live from | 1 January 2027 | 1 January 2026 |
The EU €100 per tonne penalty for certificate non-surrender is a useful reference point for scale.
A UK importer of steel with 5,000 tonnes of embedded CO₂ failing to meet an obligation under an equivalent regime would face a penalty exposure of €500,000.
While UK-specific per-tonne figures have not been confirmed in primary legislation, the trajectory of HMRC's approach — aligning with existing tax enforcement architecture — suggests material financial exposure for significant importers.
The Compounding Risk: Where Multiple Penalties Apply Simultaneously
The penalty regime for UK CBAM is not sequential — multiple categories can apply simultaneously to a single compliance failure.
A business that:
Fails to register on time and
Does not submit its first return by 31 May 2028 and
Fails to pay the CBAM charge
faces concurrent exposure across all three penalty categories. HMRC will issue a best judgement assessment for the tax, late submission penalty points will accrue, and late payment penalties will escalate daily from day 16.
The compounding nature of this exposure is why the framing of UK CBAM penalties as simply a financial fine understates the compliance risk. For larger importers, the combination of an HMRC assessment calculated on conservative default emissions values, late payment interest, and late submission penalties can produce a liability substantially higher than the underlying CBAM charge that would have applied with timely, accurate compliance.
Mitigation: Reasonable Excuse and Reduced Penalties
The UK CBAM penalty regime — consistent with HMRC's wider enforcement framework — provides for a reasonable excuse defence. A business that misses a submission or payment deadline due to circumstances genuinely outside its control may be able to challenge a penalty through HMRC's internal review process or appeal to the First Tier Tax Tribunal.
What constitutes a reasonable excuse is a matter of established case law applied to the specific facts. HMRC does not define it exhaustively, but accepted examples across equivalent regimes include serious illness, system failures outside the business's control, and incorrect advice from HMRC itself.
Critically, reasonable excuse is not accepted where a business simply failed to prepare adequately, was unaware of its obligations, or delegated responsibility without adequate oversight. Given that UK CBAM has been publicly announced since December 2023 and has been through multiple rounds of government consultation, the "unaware of the obligation" defence is highly unlikely to succeed.
The Treasury also retains the power to amend penalty amounts by regulation — adjusted in line with inflation — meaning penalty figures may increase over time.
What Compliance Failure Actually Costs: A Worked Scenario
To ground the penalty analysis in commercial terms, consider the following illustrative scenario based on confirmed regulatory mechanics:
Scenario: A UK steel importer fails to register, does not submit its first return, and does not pay by 31 May 2028
Assumptions:
Annual imports of in-scope steel: £2 million
Estimated CBAM liability: £80,000 (illustrative — based on UK ETS carbon price applied to embodied emissions)
HMRC uses default emissions values (set deliberately high) in its best judgement assessment
Exposure Component | Estimated Impact |
CBAM charge (HMRC best judgement) | £80,000+ (potentially higher under default values) |
Late payment penalty — day 16 to 30 (3%) | £2,400 |
Late payment penalty — day 31+ (3% + 10% p.a. daily) | Escalating daily |
Late submission penalty points | Accumulating toward £200 financial penalty threshold |
Administrative penalty for non-registration | Additional regulatory penalty |
Record-keeping failure (if no records kept) | Up to £600 per day after HMRC notice |
Note: The figures above are illustrative. The actual CBAM charge depends on verified embodied emissions, the quarterly CBAM rate set by HMRC, and applicable carbon price relief. Default values and CBAM rates will be published by HMRC ahead of 1 January 2027. Businesses should model their exposure using their specific commodity codes and supplier emissions data.
The Timeline of Compliance Risk
Understanding when penalties can first arise is critical for planning. The risk does not begin on 31 May 2028 — it begins as soon as imports of in-scope goods cross the £50,000 threshold in 2027.
Date / Period | Compliance Event | Penalty Risk if Missed |
1 January 2027 | UK CBAM comes into force | Registration obligation begins |
Ongoing 2027 | Both registration tests apply monthly | Late registration penalty |
31 January 2028 | Latest registration deadline (year-one transitional) | Compulsory registration + assessment |
31 May 2028 | First return and payment due | Late submission points + late payment penalties |
From Q1 2028 | Quarterly returns begin | Two-month payment window per quarter |
Practical Steps to Avoid Penalty Exposure
UK CBAM penalties are not inevitable for businesses that act early. The obligations are complex, but the mitigation steps are well-defined.
1. Establish registration eligibility now Apply the two threshold tests to your current import profile. If you import goods in the five covered sectors and your annual value of those goods may reach or exceed £50,000 by any point in 2027, registration preparation should begin immediately.
2. Do not wait for default values HMRC will publish default emissions values ahead of 1 January 2027, but default values are set deliberately conservatively — they are designed as a fallback and are more expensive than verified actual emissions. Businesses that rely on defaults when verified data is available are paying more than necessary and carrying higher exposure in the event of a dispute.
3. Commission accredited emissions verification early Emissions data used in CBAM returns must be verified by a body accredited by an International Accreditation Forum (IAF) member — in the UK, this means UKAS-accredited verifiers. The verification supply chain is finite. Businesses that approach verifiers early will avoid capacity constraints as the 2027 compliance season approaches.
4. Maintain audit-ready records from day one Record-keeping requirements will be prescribed in secondary legislation, with a retention period of up to six years. Businesses that begin structured record-keeping on 1 January 2027 — covering commodity codes, import weights, supplier emissions data, and carbon price evidence — will be in a substantially stronger position if HMRC issues an information notice.
5. Engage a qualified tax agent HMRC has confirmed that tax agents can submit UK CBAM returns on behalf of liable persons. Tax agents cannot register on behalf of a liable person, and no liability transfers to them — but their involvement in return preparation and submission reduces the risk of errors that attract penalty.
6. Consider a Time to Pay arrangement proactively If cash flow in mid-2028 makes paying the first CBAM liability by 31 May 2028 uncertain, contact HMRC's Payment Support Service before the deadline. A Time to Pay arrangement agreed before day 15 of the overdue period eliminates late payment penalties for the duration of the arrangement.
FAQ
What is the first UK CBAM payment deadline?
The first UK CBAM payment and return are both due by 31 May 2028, covering the full 2027 accounting period from 1 January 2027 to 31 December 2027.
What happens if I don't register for UK CBAM?
HMRC can compulsorily register a business that fails to register and will issue a best judgement assessment for the CBAM charge due. A general regulatory penalty also applies for late registration. During 2027, businesses have until 31 January 2028 to register before the standard 30-day registration window applies.
Are UK CBAM penalties criminal?
In most cases, penalties are administrative — aligned with the VAT penalty framework. However, the Finance Act 2026 (Schedule 18) creates specific criminal offences for fraudulent evasion of UK CBAM and for deliberate or reckless misstatement, including the use of false documents with intent to deceive.
What if I report the wrong emissions figure — is that a criminal offence?
Not automatically. HMRC will issue a best judgement assessment and penalty for inaccurate returns. The criminal offence applies where misstatement is deliberate or reckless — for example, knowingly submitting figures that have not been verified, or using false supplier documentation. Honest errors that are not reckless remain in the civil penalty category.
Can I avoid UK CBAM by splitting my business into smaller entities?
No. The Finance Act 2026 includes specific measures to deter the artificial separation of business activities to circumvent CBAM registration or liability. HMRC has the power to issue directions where such arrangements are identified.
How do UK CBAM penalties compare to EU CBAM penalties?
The EU CBAM imposes a specific fine of €100 per tonne of CO₂ for failure to surrender sufficient certificates, indexed to inflation. The UK model is aligned with the VAT penalty points system for late submissions, and with percentage-based late payment charges. Both regimes also carry separate criminal or enforcement provisions for deliberate
evasion. Businesses with obligations under both regimes face concurrent but distinct penalty exposures.
Can I appeal a UK CBAM penalty?
Yes. HMRC will notify businesses of penalties and offers an internal review process. Businesses can also appeal to the First Tier Tax Tribunal. A reasonable excuse for a missed deadline may cancel or reduce a penalty, subject to the specific facts.
References and Sources
This article is backed by authoritative source and research;
GOV.UK / HMRC – Carbon Border Adjustment Mechanism (CBAM): Policy Summary
URL: gov.uk/government/publications/carbon-border-adjustment-mechanism-cbam-policy-summary
GOV.UK / HMRC – Carbon Border Adjustment Mechanism (CBAM): Policy Update
URL: gov.uk/government/consultations/draft-legislation-carbon-border-adjustment-mechanism
UK Parliament – Finance Act 2026 (Schedule 18 — CBAM Offences; Schedule 19 — Supplementary Amendments)
GOV.UK – Penalties for Late Submission (VAT Points-Based Regime)
URL: gov.uk/government/publications/penalties-for-late-submission
GOV.UK – How Late Payment Penalties Work if You Pay VAT Late
URL: gov.uk/guidance/how-late-payment-penalties-work-if-you-pay-vat-late
Mayer Brown – What Are the Top 10 Things You Need to Know About UK CBAM? (May 2025)
Freeths / CarbonChain – Navigating the UK CBAM: Publication of Draft Primary Legislation (June 2025)
A&O Shearman – The UK's Carbon Border Adjustment Mechanism Continues to Take Shape (January 2026)
URL: aoshearman.com/en/insights/the-uks-carbon-border-adjustment-mechanism-continues-to-take-shape
Tax Adviser Magazine – CBAM in 2025 and Beyond: What You Need to Know
URL: taxadvisermagazine.com/article/cbam-2025-and-beyond-what-you-need-know
Saffery – Carbon Border Adjustment Mechanism (CBAM) — A Guide (July 2025)
URL: saffery.com/insights/articles/carbon-border-adjustment-mechanism
CMS Law-Now – The Road to a UK CBAM — Various New Developments (February 2026)
URL: cms-lawnow.com/en/ealerts/2026/02/the-road-to-a-uk-cbam
Disclaimer
This article is published by CBAM Journal, operated by Sekason Research Limited (Company No. 14339910), Brentford, London, England. It is intended for general informational and research purposes only. Nothing in this article constitutes legal, financial, tax, or regulatory advice. UK CBAM legislation and secondary regulations remain subject to finalisation by HMRC and HM Treasury. Readers should consult a qualified legal or tax adviser for advice specific to their circumstances and compliance obligations. CBAM Journal makes no representations as to the completeness or accuracy of information derived from third-party regulatory and legal sources cited herein. Read complete disclaimer here.
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