I've been running on a flat rate VAT scheme for a number of years now, but have only recently started to use KashFlow. On the end of year P&L statements prepared by my accountants, both Turnover and Expenses are listed gross of the full VAT rate (i.e. 20% currently). VAT Surplus Retained (i.e. the difference between the full and flat VAT rates) does not appear anywhere on the P&L statement. When I prepare equivalent P&L statements in KashFlow (retrospectively), I notice that both Turnover and Expenses are listed net of VAT. I'm confused as to which - if any - of these is correct? To my mind since VAT paid on expenses is irrecoverable under the flat rate scheme (with certain exceptions), the P&L should report expenses gross of VAT. On the other hand, since the VAT Surplus Retained is in effect recoverable (i.e. it's the company's to keep), should the Turnover figure not include this? i.e. total Turnover = net sales plus VAT surplus retained. This seems to tie in with HMRC's own guidelines on accounting for flat rate VAT: http://www.hmrc.gov.uk/manuals/bimmanual/bim31585.htm What's the correct treatment here?