Navigate to the payment you want to refund and click on More. This is highlighted in the image below.
This then brings up different options and you should click on Refund.
Once you click on refund it brings up the Create Refund screen which you can see in the below image. It auto populates the account name, reference, date and amount. You can choose a refund reason if you wish and these reasons can be set under Refund Reason in the custom list section in TM3 settings.
Once you click Create it brings you to the screen below. This screen is detailing the refund and you are able to print it and edit it etc.
The refund highlights a payment ref no. You can see in the image above it shows a ref of 181. When I go to payments and search for payment 181 it brings up the payment below which details that this payment has been refunded.