A European Parliament probe alleged on Monday that funds for the group of MEPs that UKIP belongs to had wrongly been spent "for the benefit of UKIP".
It said the group should repay Â£146,696 of the funds intended for European Parliament business.
The Electoral Commission is now looking into "whether there has been any breach of UK election law".
In response to the news a UKIP spokesman said: "We are confident we will be found to be in the clear."
The European Parliament investigation claims that the UKIP-dominated grouping - the  Alliance for Direct Democracy in Europe - broke rules banning the use of the funds on "financing of national political parties, financing of national election campaigns and candidates or referendum campaigns".
In a statement the European Parliament Bureau said: "The activities of the ADDE which were found to breach the rules for European party financing, were nine opinion polls held in the UK ahead of the 2015 general elections as well as ahead of the EU referendum in 2016, and a report on these polls.
"The expenditure linked to the services of three consultants was considered non-eligible by an external auditor and by the Parliament's administration."
When the European Parliament allegations first emerged last week, a spokesman for the ADDE group accused the parliament of "harassment", with UKIP MEP Roger Helmer adding: "Call it revenge for Brexit if you like."
BBC assistant political editor Norman Smith said it was understood the Electoral Commission inquiry related to whether UKIP spent some of the European money on the Brexit referendum.
UKIP would face a possible fine up to Â£20,000 if it was judged to have accepted "impermissible donations".

Sgt Patrick Swanton said: "There has been enough tragedy and there has been enough bloodshed."
Seven people remain in hospital and 170 are in custody. About 50 weapons were recovered from the scene.
Sgt Swanton said the fight may have started when someone's foot was run over in a car park.
There was also anger that an uninvited gang had shown up at a meeting between other gangs, hosted by the restaurant Twin Peaks.
On Tuesday morning, police continued to pore over the multiple crime scenes - the restaurant areas, the bar, the toilets and the car park.
Police are keeping members of the rival gangs in different parts of the jail, the Waco Tribune-Herald reported.
Three of the men arrested were mistakenly charged with lesser offences and were released on Tuesday after posting a $50,000 (Â£32,000) bond. Texas officials said all three men were arrested again and are being held on more serious charges.
On Monday night, they began removing motorcycles and other vehicles from the area. Tow trucks are requiring a heavy police escort when they move the vehicles away from the scene. Around 80 cars or pickup trucks still need to be carried away.
The restaurant meeting was meant for a coalition of invited bike groups and the organisers had requested the outdoor seating area for the event.
A bike gang which was not invited to the meeting showed up, and a "disturbance in the parking lot" followed, according to Mr Swanton.
That incident sparked the larger gun battle, which ultimately left nine people dead. The names of the deceased have not been released, because family members are still being notified.
Mr Swanton would not say how long the shoot-out lasted, but said that police responded "within seconds if not within at least a minute".
He said that police were not inside the restaurant because they "were not welcomed by management".
The sergeant said that the "credible" threats made against law enforcement in recent days are diminishing.
"We think that those threats are toning down a bit. We appreciate that," he said, but noted that police are asking for "cooperation from known criminal bike gangs".
The Electoral Commission has opened an investigation into UKIP's finances after allegations it misspent EU funds.
[NEXT_CONCEPT]
Police in Texas are calling on members of rival motorcycle gangs to stop fighting after a deadly weekend shoot-out in Waco left nine dead.