I have read this thread carefully, including a lot of sound advice, and particularly the assistance put out by Cyndy.
I am not without sympathy for Ian. His customer is being overly aggressive, and the amount demanded is unreasonable. In fact, the unreasonable nature of that demand may well be the undoing of the customer, and a big help to Ian.
But this is a case book in caution to us all.
1. Ian - and I mean this kindly - you have insufficient business knowledge to be running a business. This causing you a level of stress that no one should deliberately put themselves through.
2. Based on the information, you still have not got the site working properly. I suspect that making it do so is not more than a few hours work, but it does need focus. Once it really is working, you can make an offer to the customer of some level of recompense. Personally, I would be offering the £850.00 back.
3. Your business does not, itself, sound very solvent. Running so close to the wind suggests that you are again putting yourself at risk.
4. To us all - never, ever, take on a project that you do not understand. Even if you are going to outsource the work.
5. To buyers of ecommerce sites - this is what you get for £850.00 . Ian, through lack of knowledge, has hideously underquoted for the project.
The above sounds blunt. But this is a business forum, and I am sure we can handle blunt. I am somewhat on Ian's side here, but this situation was avoidable.
Now, the course of action needs to be swift, and decisive, to minimise loss. But if the site is still not working correctly, the clients case is strengthening by the minute.