Click on the item sold and top left onto View Order details.
On the far right from More Actions drop down menu select Cancel Order selecting the reason... Buyer requests to cancel. This refunds the buyer and your seller performance is not affected.
If you had ' seller pays' you need to cancel the unused label and do so within 14 days.
Find your label with this link . https://www.ebay.co.uk/ship/lmng/labels-history/seller-hub and to the left of the sales record there is a drop down menu under 'Actions' click on that , then click on 'Void Label'.
If the buyer paid for the label it will be refunded to them automatically withing 30 days.
@djheg