You need to enter a credit note, go to the Enter bills screen and at the top left there is an option to change from Bill to Credit.
Then go to the Record Deposits screen to actually receive the refund. The account will be Accounts Payable.
Finally, you can allocate the credit against that refund in the Pay Bills screen. Click on the credit note then allocate credit.
If your client is not VAT registered, then you can do a short cut version of the above - just go to Record Deposit and enter the details there, posting to the expense account. You don't get the option to enter VAT on this screen though.
