As the seller you are responsible for getting the item safely to the buyer.
To win the dispute you would need to enter a tracking number which proves actual delivery to the buyer.
As you did not use recorded delivery you do not have any such number.
You need to refund the buyer as soon as possible. You do not want them to escalate the dispute. Disputes opened against you harm your account. Those which are escalated do even more damage.
You need to have enough money in your paypal account to make a refund, so upload money from your bank account if you don't have enough in your paypal balance. You cannot fund a refund with a credit card payment.
You will have to claim from Royal Mail for your loss using your proof of postage.
