This just may be in the old category of "it's fine to do it, but if there is an incident later on that flight, e.g. in the landing, in which a passenger gets hurt, and the passenger "discovers" that he can get some (or more) compensation if the flight was illegal, then he may just say something which assists his case"
Another example is where the PPL cost sharing formula is exceeded. In practice it goes on frequently and it is all but impossible to get caught - unless somebody talks. And you can be sure that a passenger will talk if there is an accident (not related to the actual/promised payment of course).
Never forget that most people, even those you consider your closest friends or relatives, will say things that will assist them if they have been injured, even if doing so drops you in the ***t. Even if the "injury" is purely financial but is substantial enough. The mere threat of a financial penalty is enough to "swing" most people.
So, personally, I play things very straight
I agree with Mike C's interpretation though; it seems to take care of itself because it is obvious that when up in the air you can teach someone to fly; it won't be of much use to them though because they can't log it. I suppose you could take somebody through the whole PPL/IR stuff and then send off to Florida to legalise it by flying the 45+35 hours at the lowest possible cost.
I wonder if somebody else can do the radio though... they would need to get the CAA radio license surely, which means passing the RT test? This IS potentially important because if you get a non-flyer to do the radio, your whole airfield will hear it and if somebody has a score to settle (pretty common among flying schools in certain locations
) they might do so...