This may be because you have a private account when you need to be properly registered as a business seller.
Private sellers don't have multiples of brand new items because they are selling their own unwanted items so can't usually offer a replacement.
In this case, I think you should refund the buyer without a retrun - there is little point in having a damaged item back - they can then purchase from you again.
In the meantime, you do need to upgrade your account.
https://www.ebay.co.uk/sellercentre/selling/create-ebay-business-account
"There are two ways to be fooled. One is to believe what isn't true; the other is to refuse to believe what is true.”
Søren Kierkegaard, Danish philosopher (1813 - 1855)