Readers’ forum: Does re-imbursement of repair costs include VAT?

As a non-specialist contributor to Taxation magazine I would like to pose a question. It seems to be accepted practice that re-imbursement of vehicle repair costs will include VAT if paid direct to a garage or if the injured party claimant is VAT registered but not if the claimant is not VAT registered.

This means to my mind that non-registered claimants pay the VAT to their own garage and are out of pocket on the claim to that extent and the paying party gets its VAT liability paid for it by the injured party.

I can see no justification whatsoever for this practice. Where an intermediary such as a loss adjuster is dealing with the case on behalf of a client presumably they pocket the VAT which would otherwise have been paid and their unwitting client gets the blame.

Am I missing something?

Query...