The party had feared it could be left 'penniless'

The party had feared it would face financial ruin after the Electoral Commission said it should be forced to pay back as much as �367,697.

But it was told it only had to hand over �14,481 in donations made by retired bookmaker Alan Bown at a time when he was not on the electoral roll.

UKIP also had to forfeit �4,000 from Isle of Man-registered firm Nighteck.

'Insufficient'

The money will go to the Treasury, rather than back to the donors.

Mr Bown gave UKIP donations worth a total �363, 697 during a period when he was not on the electoral roll, between December 2004 and January last year, Westminster Magistrates Court heard.

UKIP, which has 10 MEPs, admitted breaking the law but said it was due to a clerical error.

Public confidence in our democracy depends on political parties abiding by the rules Electoral Commission

Senior district judge Tim Workman ruled that the breach had been accidental, but added that the party had carried out "insufficient" checks.

Mr Bown had been on the electoral register in Thanet, Kent, but was removed without his knowledge in December 2004.

The businessman did not find out until December 2005 and was reinstated the following February.

'Did not check'

Mr Workman said it was "clear Mr Bown had been entitled to be on the electoral register" but that UKIP had not taken all "reasonable steps" to confirm this when accepting his money.

He added: "It's clear that the party did not check the electoral roll between December 2004 and January 2006."

But he ruled that of the �363,697 in cash and services Mr Bown gave to the party, only �14,481 had been paid after it found out he was not on the roll.

UKIP leader Nigel Farage said: "We have said right from the start that we as a party should have checked whether Alan was on the electoral register, not just taken his word for it.

"It was entirely disproportionate for the Electoral Commission to seek the forfeiture of the whole amount.

"We may have broken the letter of the act but we did not break the spirit of the act."

Appeal 'possible'

In a statement, the Electoral Commission said it was "disappointed that the court did not order forfeiture of all the impermissible donations".

It added: "We will study the judgement carefully and will consider whether to appeal.

"Public confidence in our democracy depends on political parties abiding by the rules."

Mr Bown has promised to reimburse UKIP for the forfeited donations.

The party was also given �4,000 by Nighteck on 23 April 2005, the court heard.

But, as the firm was registered in the Isle of Man, the donation was impermissible under electoral law.

The case is the first challenge to the Electoral Commission's interpretation of the 2000 Political Parties Elections and Referendums Act.