Document company-director NI (annual cumulative basis) (#721)

changelog.d/721.md

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+- Document the relationship between PolicyEngine UK's annual-NI computation and HMRC's "annual cumulative" basis for company directors in a new docs page; the current model is functionally correct for annual-income inputs and no code changes are required short-term, with a future `is_company_director` input flag sketched for any household-calculator follow-up.

docs/book/programs/gov/hmrc/national-insurance-directors.md

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+# Company-director NI (annual cumulative basis)
+
+```{note}
+PolicyEngine UK applies a **single annual NI calculation** at the
+person level. For most users this matches what HMRC charges company
+directors at year end. This page explains the relationship between the
+director-specific "annual cumulative" basis HMRC uses and PolicyEngine's
+current modelling, and describes what would need to change to expose a
+dedicated director-specific path. Tracked under
+[#721](https://github.com/PolicyEngine/policyengine-uk/issues/721).
+```
+
+## What HMRC's annual cumulative basis is
+
+Class 1 NI is normally charged on each *earnings period* (typically a
+week or a month) — the employer applies the weekly/monthly thresholds
+to that pay period's earnings in isolation. Directors are a special
+case because their pay is often irregular: a director might take £0 in
+salary for eleven months and then a £200,000 bonus in December. Under
+period-by-period NI rules, that pattern would generate massive NI in
+the bonus month and almost none in the other eleven, even though the
+director's annual income is no different from someone earning a steady
+salary.
+
+To prevent this avoidance route, [SSCBA 1992 s.122 and the *Social
+Security (Contributions) Regulations 2001*][nim12000] require directors
+to use an **annual earnings period** by default:
+
+1. The director's NI is computed on a **cumulative** year-to-date
+   basis.
+2. The annual thresholds (Primary Threshold, Upper Earnings Limit,
+   Secondary Threshold) are applied to YTD earnings, not to each pay
+   period's earnings in isolation.
+3. NI is charged once YTD earnings cross each threshold, and never
+   refunded if earnings drop later in the year.
+
+There is also an "**alternative**" method, which approximates the
+annual basis with monthly cumulative figures, used for in-year
+operational simplicity; the final year-end reconciliation still uses
+the annual basis.
+
+## How PolicyEngine currently handles this
+
+PolicyEngine UK already computes NI **annually** for every person:
+
+- The Class 1 employee primary and additional formulas in
+  [`variables/gov/hmrc/national_insurance/class_1/`](https://github.com/PolicyEngine/policyengine-uk/tree/main/policyengine_uk/variables/gov/hmrc/national_insurance/class_1)
+  read weekly thresholds from `gov.hmrc.national_insurance.class_1.thresholds`
+  and convert them to monthly (`× WEEKS_IN_YEAR / MONTHS_IN_YEAR`) before
+  applying the rate.
+- Because the input `employment_income` is annual and is implicitly
+  spread evenly across months, the **annual NI** the model produces is
+  identical to the annual cumulative figure a director would owe — for
+  someone earning the same total over the year, the two methods give
+  the same answer.
+
+That's why microsimulation results don't depend on director status.
+
+## Where the current model could diverge from HMRC's director rules
+
+Three situations could in principle produce a different answer:
+
+1. **Irregular within-year pay**. If a household-calculator user inputs
+   an annual `employment_income` of, say, £80,000 but means it as a
+   single lump-sum payment, PolicyEngine still spreads it across twelve
+   months — matching the annual cumulative outcome. There is no
+   surface here for the user to express the pay timing.
+2. **Mid-year start or end** of directorship within a tax year. The
+   pro-rating rules for directors who start or cease being a director
+   part-way through a year are slightly different from regular
+   employees — PolicyEngine assumes a full-year period everywhere.
+3. **Multiple employments**. A director with two separate company
+   roles can sometimes have NI calculated separately per employment.
+   PolicyEngine has a single `employment_income` per person and so
+   collapses this case.
+
+In practice (1) and (2) only matter for the household-calculator
+front-end, not microsimulation. (3) is a wider modelling gap that
+applies beyond directors.
+
+## What a dedicated director path would look like
+
+A future PR addressing this fully would add:
+
+- A new boolean input `is_company_director` (Person, year).
+- A documentation flag on `ni_class_1_employee_primary` / `_additional`
+  noting that for directors with `is_company_director == true` the
+  formula returns the same annual figure as the regular path (rather
+  than period-by-period NI), confirming the equivalence.
+- Optional follow-up: a `company_director_pay_timing` enum so that
+  household-calculator users who model a director's actual pay pattern
+  can document their intent, but the resulting NI stays on the annual
+  basis.
+
+For now PolicyEngine is **functionally correct** for any user whose
+input is an annual income — which is the expected interface — and
+no code changes are needed in the short term.
+
+## References
+
+- HMRC, [NIM12000 — Class 1 NICs: company directors](https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim12000) — primary internal guidance covering the annual cumulative basis.
+- HMRC, [CA44 — National Insurance for company directors](https://www.gov.uk/government/publications/ca44-national-insurance-for-company-directors) — the operational employer guide.
+- [The Social Security (Contributions) Regulations 2001 (SI 2001/1004) reg. 8](https://www.legislation.gov.uk/uksi/2001/1004/regulation/8) — the regulation that imposes the annual earnings period.
+- [Social Security Contributions and Benefits Act 1992 s. 8](https://www.legislation.gov.uk/ukpga/1992/4/section/8) — primary statute for Class 1 employee NI.
+
+[nim12000]: https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim12000