A friend gets 'rental allowance' from work - how can he 'rent' from me but actually keep the extra money?

If your friend has the cash paid directly into his account, all he then has to do is withdraw that money to pay to you. Then when you pay it into YOUR account, there's no way of telling where that cash came from, as it will just be cash you could've got from anywhere. The only way you'll have to worry is if you attach a Direct Debit to your friend's account so it pays directly to yours.