How do you deny / refuse payment via Paypal?

A buyer has sent payment via Paypal after the transaction was cancelled & I received credit of final value fee. The item is no longer available & I want to return the payment however, by simply refunding the payment, Paypal advise it has been accepted.

How do I go about denying the payment or refuse to accept it?

If it is a cleared payment you can't refuse to accept it. All you can do is refund the payment.

Thanks for that....!!

When you go to Paypal to refund their payment, you can also leave a note to let them know that the reason you're refunding is because the item is no longer available (assuming you haven't already emailed them seperately with that information).