What Is a Pay Less Notice? Plain English Guide for Subcontractors

A pay less notice is one of the most important — and most misunderstood — documents in UK construction payment. Get it wrong on either side and the consequences can be significant: subcontractors can be underpaid for months, or main contractors can lose the right to make deductions they would otherwise be entitled to.

This guide explains exactly what a pay less notice is, when it must be served, what it has to contain, and what your options are when you receive one. If you're reviewing a subcontract and trying to understand how these notices interact with your payment cycle, LazyQS contract review can flag the key dates and risk clauses automatically.

What Is a Pay Less Notice?

A pay less notice is a formal document that a paying party — usually a main contractor — serves on a subcontractor to reduce the amount it intends to pay below the notified sum. The notified sum is the amount stated in the payment notice (or, where no payment notice was served, the amount in the subcontractor's payment application).

In plain terms: if you submit an application for £80,000 and the main contractor wants to pay you £60,000, they must serve a pay less notice explaining why they're paying less and how they've calculated the reduced amount. Without a valid pay less notice, they must pay the full £80,000 — even if they dispute part of it.

This rule exists because of the Housing Grants, Construction and Regeneration Act 1996 (commonly called the Construction Act), as amended by the Local Democracy, Economic Development and Construction Act 2009. The Act was designed to improve cash flow in construction by making payment obligations clear and enforceable.

Why Pay Less Notices Matter

Before the Construction Act, main contractors could withhold payment with minimal explanation and limited recourse. Subcontractors were routinely paid late or paid less than they'd applied for, with little ability to challenge the deductions effectively.

The pay less notice regime changed this. If the main contractor fails to serve a valid notice in time, they lose the right to pay less — full stop. They can still dispute the amount through adjudication or other means, but in the meantime they have to pay up.

This is sometimes called the "smash and grab" adjudication: a subcontractor uses the failure to serve a valid pay less notice to recover the full notified sum quickly, without the merits of the underlying valuation being decided. Courts have consistently upheld this approach. The procedural rules exist for a reason, and they're strictly applied.

The Construction Act Requirements

Under the Construction Act, a valid pay less notice must:

• Be served by the prescribed period before the final date for payment. The prescribed period is the period specified in the contract, or — if the contract doesn't specify — five days under the Scheme for Construction Contracts.
• Specify the sum that the paying party considers to be due. This is the amount they intend to pay, which may be zero.
• Specify the basis on which that sum has been calculated. It's not enough to say "your valuation is too high" — the notice must set out how the paying party has arrived at their figure.

These aren't optional formalities. Each element is a statutory requirement. A notice that states a reduced sum but doesn't explain the calculation is defective. A notice served even one day late is ineffective. The paying party then has no right to pay less than the notified sum.

Timing Rules in Practice

Timing is where pay less notices most often go wrong — and where subcontractors sometimes recover money they wouldn't otherwise see.

To understand the timing, you need to understand the payment cycle:

1. Application date — the date by which the subcontractor submits their payment application.
2. Due date — the date by which the paying party must issue a payment notice stating what it considers to be due.
3. Final date for payment — the date by which the payment must actually be made.
4. Pay less notice deadline — a specified number of days before the final date for payment.

The pay less notice must be served before the final date for payment by whatever period the contract specifies. Under the Scheme, this is five days before the final date for payment.

Example. Suppose your subcontract has a 28-day payment cycle. Your application is due on the first of the month. The due date is the 14th. The final date for payment is the 28th. If the contract specifies a five-day prescribed period for pay less notices, the deadline for the main contractor to serve a pay less notice is the 23rd.

If the notice arrives on the 24th, it's out of time. The main contractor must pay the notified sum by the 28th.

This is worth understanding clearly because missed deadlines are not unusual. Programmes slip, commercial teams are under pressure, and pay less notices get forgotten. LazyQS contract review can map these dates from your subcontract so you always know when the key deadlines fall.

What a Pay Less Notice Must Contain

The notice needs to do two things: state the sum the paying party considers due, and explain the basis of the calculation.

In practice, that means the notice should identify:

• The gross valuation the paying party accepts
• Any deductions being made (retention, contra-charges, liquidated damages, set-off)
• The calculation underlying each deduction
• The net sum they intend to pay

Vague notices — "we are paying £40,000 as your application is overvalued" — have repeatedly been found to be invalid by adjudicators and courts. The paying party must show their working.

If the notice relates to contra-charges or set-off, those deductions need to be particularised. Simply referencing a dispute about defects or delay isn't sufficient if the amounts aren't quantified. Read our guide to contra charges and what subcontractors can do about them for more on this.

What Happens If No Pay Less Notice Is Served?

If the paying party fails to serve a valid pay less notice before the deadline, they must pay the notified sum by the final date for payment. This is not discretionary — it's a statutory obligation.

If they still don't pay, the subcontractor has several options:

• Suspend performance. Under section 112 of the Construction Act, a subcontractor can suspend work after giving at least seven days' written notice. This is a significant right and one that's often underused.
• Refer to adjudication. The subcontractor can refer the failure to pay to an adjudicator, who will almost certainly order payment of the notified sum given the absence of a valid pay less notice.
• Issue proceedings. In more serious cases, legal proceedings may follow — though adjudication is usually faster and cheaper.

The key point is that the absence of a valid pay less notice is a strong position for a subcontractor. The merits of the underlying valuation may still be disputed later, but the immediate obligation to pay the notified sum is enforceable.

What Happens If a Pay Less Notice Is Served?

Receiving a pay less notice doesn't necessarily mean accepting the deductions. You have options:

• Check the notice is valid. Was it served in time? Does it specify the sum and basis of calculation? If either element is missing or the notice is late, it may be ineffective.
• Assess the deductions. Are the amounts justified? Are contra-charges particularised and supported by evidence? Is retention being deducted at the correct rate?
• Challenge through adjudication. If you believe the deductions are unfair or unjustified, adjudication is usually the fastest route to a binding decision. Construction adjudication typically concludes within 28 days and is designed to keep cash flowing while disputes are resolved properly.

It's worth understanding how pay less notices interact with other clauses in your subcontract. Clauses that affect payment timing — including pay-when-paid arrangements and set-off rights — can all bear on when and how pay less notices arise. See our guide on pay when paid vs pay if paid for how those provisions work alongside the payment notice regime.

Reviewing Your Subcontract Before You Sign

Pay less notices don't arise in a vacuum — they operate within the payment framework your subcontract sets up. Before you sign, it's worth checking:

• Is the prescribed period for pay less notices clearly defined? If not, the Scheme's five-day default applies.
• What is the payment cycle and where do the key dates fall?
• Are there any clauses that extend or alter the standard pay less notice regime?
• Are set-off and contra-charge rights defined clearly, with notice requirements?

Getting these terms right upfront is far better than fighting about them during a dispute. Our subcontractor contract review checklist covers all the payment clauses worth checking before you commit.

The Bigger Picture

Pay less notices exist to protect cash flow — for everyone in the supply chain. When they're used correctly, they give main contractors a legitimate mechanism to dispute valuations without simply withholding payment. When they're used improperly — or not served at all — subcontractors have a clear statutory route to recover what they're owed.

Understanding how the pay less notice regime works is part of understanding your rights under construction contracts more broadly. The Construction Act gives subcontractors meaningful protections: the right to payment notices, the right to adjudicate, the right to suspend for non-payment. None of those rights are worth much if you don't know when and how to exercise them.

LazyQS contract review helps subcontractors identify the key dates and risk clauses in their subcontracts before work begins — so that when a pay less notice arrives, you already know whether it's valid and what your options are.