Flat Rate VAT scheme and Profit and Loss Statement?

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?

Thanks for the reply. I've checked the VAT Surplus Retained code is set to "Turnover" and it is now appearing on the P&L statement.

I am entering all sales as usual, recording net and (full rate), but I'm not sure what you mean by them appearing on the P&L report "as such"? Do you mean net or gross?

Kashflow's P&L report definitely lists Sales Turnover as net of VAT. Are you saying this is correct or incorrect?

To summarise my current VAT code settings;

Output VAT - 2200 - Expenditure
Input VAT - 2201 - Balance Sheet
VAT Control - 2202 - Balance Sheet
VAT Surplus Retained - 2203 - Turnover

Thanks again.