Flat Rate Scheme Help ( newb ) - Loss/Gain negative

I have set up all MY VAT however I'm showing as a negative balance  when "preparing Report for VAT" 

im on the FRS 8.5%  - so all sales have 8.5% added to my VAT balance ( correct ) 

my problem right at the bottom  gain/loss  - negative . 

i have noticed some transactions for expenses have 20%  applied to it which i think where the problem lays

because i cant claim back VAT ( being on FRS ) 
should all my expenses be 0% VAT paid , as i cant claim this back anyways ? 

or I'm i required to put 20% as i technically paid 20% on that expense 

i know this is the culprit , as if i go to a large transaction, and make the 20% vat, 0% - it reduces the negative balance. 

however i cannot work out how to make the 20% transactions in the past 0% - only the rules for the future transactions 

could anyone shed some light please ?