Hi all, just updating the thread.
Thank you to @Vikster1982 for PM'ing with me.
The reason this happened was the bill that came out of the account via direct debit had already been generated and processed before the handset was paid off, so the usual contract payment had already processed, regardless of the handset payment.
This has now been resolved, with the refund being processed.
If there is anything further we can do to help just let us know! All the best.
Molly