As mentioned in one of the comments in an answer below, I tried following this tutorial. So now I have the following:
The ipn.php file:
Got it working using the basic sample code 4b,
Cleared $ipnNotificationUrl = ""; from the basic sample code as I had a value in there which I added myself,
Created a seller account instead of a business pro account in sandbox,
Set the seller account to enable the ipn url,
Used the following PHP 5.2 sample code for the ipn listener
Added the 2 lines into the listener, as described here, the 2 lines can be seen below:
Downloaded the cacert.pem certificate to my server from here and put it in the same directory as the ipn listener:
The 2 lines mentioned in point 6:
CURLOPT_SSL_VERIFYPEER => TRUE,
CURLOPT_CAINFO => 'cacert.pem',
I have no idea why the sandbox business pro account does not let me set an ipn url, but the seller account does.