What Happens If My Business Doesn’t Make Any Money in the First Year

Introduction

Starting a business involves investment, risk, and patience. For many entrepreneurs, the first year is about building awareness, developing products, and gaining customers rather than making large profits. It’s perfectly normal for a new business to make little or no money at the start.

However, even if you don’t earn any income or end up running at a loss, you still have responsibilities to HMRC and Companies House. Understanding what happens in this situation can help you stay compliant and plan your next move with confidence.

Why many businesses don’t make money in the first year

There are many reasons why early profits can be slow to appear. You may have large setup costs, need time to attract customers, or operate in a competitive market. Some sectors, like retail or manufacturing, require significant upfront investment before sales begin.

It’s also common for entrepreneurs to reinvest early earnings into marketing, stock, or staff rather than paying themselves. As long as the business model is sound, a lack of profit in year one isn’t necessarily a problem—it’s part of the growth process.

Do I still need to tell HMRC if I made no money

Yes. Even if you made no money, you must still inform HMRC once you start trading. Sole traders and partnerships must register for Self Assessment and file a tax return each year, even if their profit is zero.

Limited companies must file annual accounts and a corporation tax return, even if they had no sales or made a loss. Filing is still required to show HMRC and Companies House that your business is active.

Failing to file on time can lead to penalties, regardless of whether you owe any tax.

Can I claim expenses if I didn’t make a profit

Yes. You can still claim allowable business expenses for the first year, even if your income was low or non-existent. These include costs such as marketing, equipment, travel, and insurance, as long as they were incurred wholly for business purposes.

If your total expenses exceed your income, your business has made a trading loss. This is not unusual for new businesses and can actually provide tax relief, depending on your structure.

For sole traders and partnerships

You can offset trading losses against other income, such as employment earnings, to reduce your overall tax bill. Alternatively, you can carry the loss forward to offset against future business profits once you start making money.

For example, if you lose £3,000 in your first year and make £10,000 profit in the second year, you can deduct the £3,000 from that profit and pay tax only on the remaining £7,000.

For limited companies

Limited companies can carry trading losses forward to offset against future profits, reducing future corporation tax. In some cases, they can also carry losses back to offset against profits from the previous year (if applicable) and reclaim tax already paid.

You should keep detailed records of your expenses and losses so your accountant can include them in your tax return and maximise relief.

What if I didn’t trade at all

If your business was registered but did not trade during the year—meaning it had no sales, expenses, or income—it is classed as dormant.

A dormant company must still file dormant accounts with Companies House and a confirmation statement each year. You must also inform HMRC that the company is dormant so you are not expected to file corporation tax returns until trading starts.

For sole traders, there’s no need to file a tax return if you genuinely did not trade or receive any business income during the tax year. However, if you registered as self-employed, it’s safer to file a return showing no income rather than risk penalties for non-submission.

Can I pay myself if the business made no money

If you are self-employed, you can only pay yourself from business profits. If there were no profits, there is technically nothing to draw as income. You can, however, take money from your own savings to cover personal costs until the business starts earning.

If you run a limited company, you can pay yourself a salary as a director, but this creates costs for the business. Many owners choose to wait until cash flow improves before taking pay. Any personal funds you invest into the business are classed as a director’s loan and can be repaid later when profits allow.

Do I need to pay tax if I made no money

No. If your business made no profit, you won’t owe income tax or corporation tax. However, you must still file your tax returns and accounts by the deadlines.

If you made a small loss, it’s still worth filing accurately so that losses can be carried forward and used against future profits. This can reduce your future tax bills once your business becomes profitable.

You may still have to pay other costs such as VAT (if registered), insurance, or business rates, depending on your situation.

How to recover from a slow first year

A slow start doesn’t mean failure. Many successful businesses took more than a year to turn a profit. What matters is learning from your first year and making informed adjustments.

Here are practical steps to move forward:

Review your finances: Analyse where your money went and which expenses could be reduced or postponed.

Check your pricing: Make sure your prices reflect your value and cover your costs.

Improve marketing: Refine your target audience and focus on channels that give the best return.

Seek feedback: Ask customers or mentors what could make your offering more appealing.

Work with an accountant: They can help identify tax reliefs, cash flow improvements, and financial strategies to stabilise your business.

A small loss in the first year can still lead to long-term success if you adapt quickly and keep good records.

Common mistakes to avoid

Ignoring tax filing deadlines because no profit was made

Mixing personal and business spending, which complicates accounting

Giving up too early without assessing why profits were low

Failing to track and claim allowable expenses

Not seeking professional advice to plan for recovery

Avoiding these mistakes helps keep your business compliant and ready for growth when conditions improve.

Conclusion

It’s normal for businesses to make little or no profit in their first year. HMRC doesn’t penalise you for that, but you must still file the correct paperwork, record your expenses, and manage your finances carefully.

Losses can often be carried forward to reduce future tax bills, giving your business a stronger financial position once sales pick up. Focus on learning from your first year, refining your approach, and staying consistent. With time, patience, and good planning, a slow start can become the foundation for future success.