An umbrella company in the UK acts as an employer for tax purposes. It works by entering into an overarching contract agreement with a recruitment agency or client, and the contractor whom it provides its services for.
Umbrella companies are very common in the UK and are a popular payroll method for many professionals who work on fixed-term contracts. They are usually used by people who operate on £15 per hour or less, are contracting for three months or less, work in the public sector or operate inside IR35.