HM Revenue & Customs has dramatically escalated attempts to compel banks to release the names of thousands of customers with offshore accounts as part of its fight against tax evasion despite fears that it may be overstepping its legal powers.

HMRC is expected to meet representatives from the banking industry on Monday to discuss their concerns over plans to seek a legal order forcing about 170 banks to hand over the records of customers with a UK address who also hold an offshore account, regardless of whether they are even liable to pay tax.

Last year HMRC succeeded in retrieving the names of more than 400,000 customers from several high street banks but a two-month amnesty recovered only £400million. The taxman believes that billions of pounds of unpaid tax remain hidden offshore.

A letter to industry groups this month reiterated HMRC's intention, announced in September, to step up the investigation to include customers at a much larger group of banks.

The banks have expressed fears that retrieving the data will be disproportionately costly and could put them offside with customers when doubt remains over the Government's handling of private information. In November, HMRC admitted losing discs containing the records of 25 million child benefit recipients.

Lawyers said that the banks had a strong case to withhold the data and could seek a ruling from the High Court blocking the taxman. However, the banks are reluctant to antagonise the Revenue. Heather Gething, head of tax planning and tax disputes at the law firm Herbert Smith, said: “The banks are obviously concerned they will be seen to be supporting tax dodgers if they don't co-operate. Any taxpayer who stands up for their rights is in danger of being considered by the Revenue as uncooperative and portrayed as the bad guy.”

Banks are bound to protect confidential customer information unless ordered by a court or special commissioner to release it. Under the Taxes Management Act 1970, the taxman can ask a special commissioner to force a third party to hand over information relating to unnamed taxpayers or a class of taxpayers if there is evidence to suggest they have evaded tax.

In the earlier cases relating to the high street banks, HMRC argued that a comparison of tax returns against child benefits paid into non-UK accounts showed that only a fraction of their customers with an offshore account were declaring their foreign income.

Lawyers said that the same evidence did not apply to customers of other banks and that the legislation - originally used against casual Fleet Street print workers - was never intended to be applied so broadly.

A letter on November 30 from Angela Knight, chief executive of the British Banking Association, Adrian Coles, director-general of the Building Societies Association, and John Treadwell, managing director of the Association of Foreign Banks, questioned whether there was “sufficient evidence to satisfy the legal criteria” for handing over the information.

However, they indicated that they would co-operate with the Revenue if it agreed to narrow its approach. In a response this month, Dave Hartnett, acting chairman of HMRC, acknowledged the banks' fears but said that the Government was determined to crack down on tax dodgers.