I know i can insert a tag using
SET @x.modify('insert "FileSerialNumber fileserial="000000" /" into (/BACSDocument/Data/ARUDD/ReturnedDebitItem)[1]')

which inserts into the first instance of returneddebit item, but how can insert the tag on all instances

SQL XML insert and update are rather limited in that way. You will get error something along the lines of "The target of modify must be a single node....".

More often than not, when I want to update an XML I shred it, make the changes and reassemble it.