What is the difference between a Payment Notice and a Pay Less Notice?

They are two separate notices with different jobs, deadlines and reference dates. The Payment Notice is the payer's reply to the payee's application: served no later than 5 days after the Due Date, the date the payment obligation is fixed, stating the sum due as at that Due Date, and its figure becomes the Notified Sum, the amount that legally must be paid. The Pay Less Notice is the payer's reply to that Notified Sum: served no later than the prescribed period before the Final Date For Payment, the last day the money can lawfully arrive, which is 7 days under the fallback Scheme for Construction Contracts where the contract is silent, stating the sum due as at the day of service, and it only ever reduces the figure. Both must show their sum and its workings. Whichever notice is missing when its deadline passes, the sum standing at that point is what must be paid.

Follow one round for a painting subcontractor. Due Date is the 1st, so by the 6th the contractor serves a Payment Notice for £25,000 against a £28,000 application: that first notice, keyed to the Due Date, sets the Notified Sum at £25,000. Later a defect appears and by the 7 day mark before the Final Date For Payment the contractor serves a Pay Less Notice for £22,000, keyed to the day of service, knocking £3,000 off. Two notices, two dates they speak from, one only ever reducing. Skip the Payment Notice and the £28,000 application would stand; skip the Pay Less Notice and the £25,000 would stand, because the sum in place when each deadline passes is what must be paid.