If your trading venture has made a loss, then obviously no tax will be due, but you should still prepare accounts and file a tax return. In the ordinary course of events, this loss can be carried forward to future years and offset against future profits to reduce the tax payable. This is only fair. It is after all just a matter of convention that we prepare annual accounts. If a business venture were to last several years, such as a sea voyage in times gone by, then we might instead prepare “venture accounts” and be taxed on the total venture profit instead.
There are two other common things you could do with a trading loss. You could carry it back to offset against a previous year’s profit and claim a tax refund, which is common with corporation tax. You could also offset it sideways against other profits or income of the current year to reduce your tax bill.
If the trade is actually ceasing, then the loss might be carried back up to three years. One thing to watch out for in the case of income tax is that profits are not already covered by the personal allowance, but unfortunately there can be times when we have little option and personal allowance gets wasted from a tax planning point of view.
Where a company makes losses, then losses carried forward can only be offset against losses from the same trade. In addition, there must not be any substantial change in the ownership of the company, so one company cannot buy another company with the intention of making use of its accumulated losses in order to avoid tax. This last rule is not necessarily applied in the same way in foreign tax systems.