If you are on the Flat Rate VAT Scheme, you charge your customers 20% VAT on your sales but only pay HMRC a fixed % based on the industry you operate in. As such this category counts for the live difference between these figures. If it's a positive balance it means you're ahead and making income on the adjustment, however if it's negative you're making a loss on the difference.
The difference between the VAT you charge on invoices and the flat % that you pay HMRC on your VAT inclusive sales.
What's not included
Any VAT on purchases - As you don't claim for these if you are on FR scheme.
How is it taxed?
The Flat Rate Scheme Adjustment category gets included in your sales figure when you report your corporation tax at the end of the year.
Make sure you know whether the flat rate or the standard scheme is best for you when you register for VAT. Reach out to us if you need a hand deciding.