S6E7: Audit Your Paperwork

Hands up who likes dealing with paperwork? Well, there are some of you out there, but most people avoid it like the plague. But out-of-control financial paperwork can actually add to the burden of stress you have around your finances, and getting it sorted will make you feel great! Today, I’m going to show you how!

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Audit Your Paperwork

Paperwork is the bane of my life. Given that I work in a regulated industry, you can imagine the amount of paper we push around in a typical day, and for many of you I guess it’s the same. Certainly it seems like the ideal of a paperless office is a long way off.

Paperwork is manageable if you have a system however, so today’s show is designed to give you an easy to set up, easy to maintain system for financial paperwork, including some ninja-level tricks at the end.

Resources mentioned in this episode

Here's the cheatsheet I've put together to summarise the things I talk about in this session:

Filing equipment

Expanding Folder: http://amzn.to/2tGxqab

Square-cut Folders: http://amzn.to/2rOqGWv

Labeller: http://amzn.to/2rJPmnZ

Mega-labeller(!): http://amzn.to/2rJYUiG

Transcript

And here's a transcript, kinda:

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David Horton

I think the period we have to keep tax paperwork is longer’ On a practical issue, when you get audited, it isn’t necessarily the previous completed year but may be earlier. And for me, I had to justify an increase in something over the year previous.
Admittedly that was a few years ago and our tax office has spent billions on data matching computer hardware since then.
Cheers
David
- petematthew
  
  Hi David. Nope, HMRC require you to keep records for 22 months from the end of the tax year to which the documentation relates. This is for individuals, mind. for businesses and self-employed individuals it is longer.
  
  Here’s the link: https://www.gov.uk/keeping-your-pay-tax-records/how-long-to-keep-your-records
  - David Horton
    
    I am using Australian laws. So does that mean your tax returns can’t be queried by hmrc further back than 2 years? Luxury!
    
    I’d been told you had the most complex tax system in the wirld, and hence I’d have thought much mire room for misunderstand or mistakes.
    
    Do you have self assessment or are all returns checked every year. Our ATO have computerised sanity checks for outliers and comparison with numbers provided by financial instututions and other govt branches. You get back or pay additional tax in 2-4 weeks after you submit. Then for the rest of the year they do detailed random audits based on detailed analytics on returns across this and previous years.
    - petematthew
      
      Yes, it’s self-assessment here, with ‘random’ checking, doubtless based on computer logic and outliers, as you say. I genuinely don’t know the period after which HMRC can’t challenge…
David Horton

OK. I just went out and bought a file drawer. At the moment, each day I open all the mail and allocate to bin, shred, process now, process at tax time or keep this for the year. The process at tax time will now be, using the file drawer, split into rental income, claimable bills, dividends, share transactions. So much less sorting at tax time.
Thanks Pete for spurring me into action. Fun tonight reprocessing my 2in pile.
Mike Parrott

Another great Podcast Pete. I Particularly liked the plug for Evernote – I too couldn’t do with out it – and the ability to scan a document and then for it to recognise the words when you search is awesome.
There are a couple of examples of tax related records where I would have thought you would need to keep documents for longer. If you have securities outside of a tax efficient wrapper (ie pension or ISA) you might have capital gains tax to pay. You would therefore need to have records of when and for how much you bought the security for, however long ago that was. I have a spreadsheet with these details but I assume I might need evidence – although I could obviously get this from my platform provider.
Secondly in estate planning if you give large gifts you will need to keep good records of this for 7 years until they become exempt from inheritance tax.
I have learnt so much from your podcasts. Keep up the good work!
- petematthew
  
  All good points, Mike. While HMRC only insist on us keeping records for 22 months after the end of the tax year to which the transaction, the fact is they can always ask for proof, as you say. Thanks for listening and commenting!