It seems to be dependent on the driver I use. I had the Generic Smart Z-wave Dimmer device driver which generates lots or data in the logs including physical on/off regardless if I am using the switch button or turning on/off via the controller.
I changed to the Generic Z-wave Dimmer (not smart) and now it works.
It also works if I use the Fibaro Dimmer device driver but then my dashboard brakes with icons going into time glass state as the controller does not seem to know the state of the switch. Other users seem to have the same issue Dashboard tiles not correct / updating
