The purpose of the legislation is to prevent tax evasion, more specifically VAT evasion, by providing that on construction projects where VAT is payable, the VAT has to be paid direct to HMRC.
The reverse charge legislation will catch all building and construction services supplied at standard or reduced rates of VAT. Broadly speaking, if a service is caught by the Construction Industry Scheme (CIS) then it's caught by the reverse charge, so it has a wide reach.
There is an exception for "End Users", who are consumers or final customers of building and construction services. They will in all likelihood be registered for CIS but they will not make onward supplies of the relevant construction services. So think owner occupiers, landlords, tenants and most developers.
The legislation will not only catch any projects started after the impementation date, it catches all payments made after it. So if a construction project started in January 2020 and is due to finish in December 2020, the payments made between January 2020 and September 2020 will be unaffected, but then all payments made between October 2020 and December 2020 will be caught by the legislation, as will any subsequent release of retention.
You can find helpful guidance from the link: https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services#overview
Or you can contact Morton Fraser's construction team if you would like to discuss how this might affect your business.