Legit isn't the right word really, but giving you work in return for a commission is the norm the world over. The trick is to negotiate a rate that is acceptable to both parties, and this obviously isn't good for you. I'm not sure what you're charging, but I'd almost guess that he's taking about a third to a quarter of your wages, and that's a lot of commission.
As to the tax situation, you can either declare the whole amount, and then put the commission down as a cost, or play safe and just declare the final amount you receive just in case the tax man decides to query the arrangement. And as you won't have an invoice from your relative, the tax man could decide to charge you tax on the commission, so best to play safe.
It may be that you've got to swallow being ripped off till you build your customer base, but giving someone £10 as a commission/thank you for passing on work might be construed by some as a bit measly, so sometimes, offering a bottle of wine can take the monetary aspect out of the equation, but if you're works good, and you're helpful and friendly and keep everything clean and tidy, that will often be what gets you recommended to others, with no costs involved. Just leave a few cards with the client, and see what happens.
And best of luck with the relative when he loses the nice income stream.
