Ukip's small business spokesman faced claims of hypocrisy after it emerged seven people were arrested for immigration offences in a raid on his restaurant.
The authorities raided the Manchester restaurant, set up by Ukip European election candidate Amjad Bashir with his two sons Tayub and Mudassar, on June 1 last year, The Times reported.
The family have denied any wrongdoing and party leader Nigel Farage said they are appealing and he was not going to "prejudge" the case.
The newspaper said three days after the raid Mr Bashir resigned as a director of the company which owns the Zouk Tea Bar and Grill, and a sister branch in Bradford, but he remains a major shareholder and has continued to take a role in the running of the restaurant.
Mr Bashir, 61, is second on Ukip's list of candidates for the Yorkshire and the Humber region in this month's European elections.
The Home Office confirmed seven people were arrested "for a variety of immigration offences" and a civil penalty notice was served after the raid.
Tayub Bashir told The Times that they were appealing against the notice and had not yet paid a fine.
He said the restaurant conducted immigration checks on all employees and vigorously denied any wrongdoing.
Mr Farage told BBC's This Week: "His son is the director and runs that business and they had an argument and a row with the immigration people which they are appealing. I'm not going to prejudge that."
Liberal Democrat MEP for Yorkshire and the Humber Edward McMillan-Scott told The Times: "Forget the obvious hypocrisy; employing illegal immigrants is exploitative and against the law."