Giles Chichester, son of round-the-world yachtsman Francis, insisted he had acted in good faith and would provide a full statement of his parliamentary expenses, as requested, to Conservative Party Chairman Caroline Spelman.

Mr Chichester said he had done nothing wrong in using a family-owned company as a "service provider" to support his work as an MEP.

The firm, founded by his father, publishes maps and navigational guides, and has received £445,000 since 1996 from EU coffers "in connection with secretarial and assistant services for the European Parliament, constituency and committee work".

After discussions with Conservative Central office and his Tory MEPs in Brussels, Mr Chichester confirmed he had used the family company, of which he is a director, to support his parliamentary work since being elected in 1994.

He said all the time he understood that the arrangement was "fully compatible" with European Parliament rules.

But Mr Chichester acknowledged he had received a letter from European Parliament "quaestors" - senior MEPs overseeing administrative and financial affairs - suggesting a possible conflict of interest regarding the company.

Mr Chichester replied saying he believed his arrangements were fully in line with the rules, and heard nothing back.

His statement continued: "Following recent press reports regarding the use of my parliamentary allowances, I personally sought a meeting with the European parliamentary services to clarify the situation.

"At this meeting I was informed that there had been a change in the rules relating to service providers, a change that took effect in 2003. This had not been brought to my attention when I renewed the contract in 2004, again registering it with the Parliament. As a result of this information, I immediately cancelled the contract with the company."