UKIP leader Nigel Farage has rejected claims he might have abused EU expenses, describing them as a "politically motivated attack".
The Times said a former party official had filed a complaint to the EU's anti-fraud body over his use of the "general expenditure allowance".
The UKIP leader rejected suggestions he had broken the rules on MEP allowances.
The Electoral Commission has said it is to write to UKIP for "clarification" about Mr Farage's constituency office.
The Times said Mr Farage received £15,500 a year to run the small office near Bognor Regis - but it had been provided rent-free by UKIP supporters.
The Electoral Commission's records suggest the property, a converted grain store, has not been declared since 2004 when two donations totalling £1,100 were registered.
The donation of a "benefit in kind" worth more than £1,500 a year to an MEP - like a free office - should be reported to the Electoral Commission.
The Electoral Commission said it did not consider this to be an investigation.
The Times said a former office manager had claimed the premises cost only about £3,000 a year to run. The office manager later disputed the figure, saying he had been misquoted, but the Times stood by its story.
The EU does not demand a detailed breakdown of office expenditure but Mr Farage insisted the running costs were about £1,000 a month.
The UKIP leader told BBC Radio 4's Today programme he was taking "legal advice" about The Times story, adding: "I think this is completely and utterly outrageous."
He said MEPs were given recommendations about what the allowance can legitimately be spent on, such as the running of an office, mobile phone or hotel bills, but did not have to provide receipts.
"We do not claim expenses for running an office or any other activity that takes place within the United Kingdom.
"We get an allowance, a fixed-rate allowance, and we can spend it how we see fit," he told Today.
He said he had been always been open and "unashamed" about using the allowances and expenses provided to him as an MEP to campaign for Britain's exit from the European Union but that he would "do so within the rules of the Parliament".
He described the Times report as "yet another politically motivated attack from what is the establishment newspaper".
He said he would be happy for his accounts to be audited by an independent accountant "if that would solve the argument", adding: "UKIP don't want any of these allowances. We don't want British MEPs costing the taxpayers all this money."
Earlier UKIP issued a statement saying the allegations "lack substance" and said the office allowance was used in part to pay for additional premises.
The Times says a former UKIP official has filed a formal complaint about Mr Farage to the EU anti-fraud office OLAF.
An OLAF spokesman told BBC News it had received a complaint and was considering whether it fell within the organisation's remit and, if so, whether there was sufficient suspicion of fraud or corruption to launch an investigation.
"Please note that the fact that OLAF assesses information does not mean that individuals in question are guilty of any wrongdoing. OLAF fully respects the presumption of innocence," added the spokesman.
Meanwhile, in a separate development, a committee of MEPs responsible for overseeing the European Parliament's rules has decided not to investigate allegations that UKIP was misusing EU funds.
The Times reported allegations in March that UKIP had channelled public money intended for the pan-EU political group of which it is a member, the Europe of Freedom and Democracy, into the salaries of the party's staff, against parliamentary guidelines.
But the Bureau of the European Parliament "did not find grounds for the accusation made", according to minutes of its meeting on Monday.