If you're doing work for a foreign company it's best to pay an accountant to sort out the tax for you. I know people who work in UK for foreign companies usually set up and LTD company and then pay themselves through that, through dividends etc, effectively only paying about 20% tax on everything.
As someone who contracts in the UK, I'd say it really depends on how much you're making and for what duration. If you're going to make £10,000 on a three month contract you're probably better off just registering for self assessment. I did this for a while when I was making around £28,000/annum because it was the most tax effective and easiest solution in my case. Also accountants are expensive.
If you're making £60,000+ you're probably going to want to set up an LTD company, but at that point you're really best off talking to an accountant and discussing your options.
What they are doing is probably tax evasion, unless they are only resident for a very short time or are running a business which is not a thin shell around an employment arrangement.
