I eventually solved this - but it required some help from the online chat people to rescue some money put onto a sim that became useless. Fortunately when O2 sent me a new sim they actually sent two, so I was able to use the second one.
The steps necessary were as follows
1) remove the sim from the packaging BUT LEAVE IT AS FULL sim size. I took the existing sim out from my iPhone and put the new one in.
2) Activate the sim by topping it up (in my case the online guys did this, by moving the money from the first sim I had (which I had already made into a micro sim so would no longer fit in my iphone)
3) Create an on-line account for the number of this new sim. The reason you need to leave it in the iPhone is that to sign up for the online account you need the text message sent to you to verify it. My Nexus 7 can't receive text messages.
4) Now link the two accounts
5) Remove the sim from the iPhone, and replace the old one in it. Cut the new sim down to micro sim size and put in in the Nexus 7
I now have two working accounts, linked together, and auto topping up from the same card.
