How do I reconcile an overpayment?

For example, if you've invoiced a customer £75 but they've paid you £100.

Reconcile the full £100 of the transaction to the ledger item by editing the £75 that will automatically appear in the box on the right. This correctly records the overpayment with an additional £25 allocated to the ledger, meaning it'll remain unreconciled for the time being.

Then, when you have refunded the £25 to your customer, reconcile that transaction to the same ledger item (the amount to allocate should be -£25) which will balance everything and mark the ledger item as reconciled.