In case where a council need to refund a service user, for example due to overcharging or an incorrect assessment,  should those monies be refunded to the service user or into their DP account?

There is no law on that, but logically, it would be reasonable for the council to repay the money to whatever account the money came from. 

In any system where the charges were paid on receipt of an invoice to the client, the repayment should be made to the client’s account, from whence it came.

In any system where the council manages the client’s direct payment account, or has access to that special account for claw backs, the client would have been obliged to be paying their charges INTO that account. So the principle above would mean that the council should pay the refund back into the direct payment account. However, the person would then have to be allowed to recover the money represented by that refund back to their own control; they could not be obliged to spend it ongoing care.

Here is an example.

Say the person was charged £20 against a budget of £100. 

They got £80 from the council. They put £20 in of their own and spent the budget on care. 

The council then discovered that the charge should have been £15, so the direct payment net amount needed to be £85. That extra £5 needs to be put into the direct payment account but can be taken out by the client.