LONDON, June 26 (Reuters) - Britain will put pressure on banks on Monday to promise to stop avoiding tax or face greater oversight of their affairs, a source familiar with a new consultation process told Reuters on Friday.
Banks have been accused of breaking the spirit of the law by the use of elaborate schemes allowing them to escape billions of pounds in taxes.
With the public finances in a dire state -- the budget deficit is expected to hit 175 billion pounds this year -- the government is keen to crack down on tax avoidance and claw back as much revenue as it can.
The source said the consultation would mark the start of "grown-up" conversations between banks and tax authorities about how financial institutions need to change their behaviour and follow the spirit, not just the letter, of tax law.
The government wants all banks operating in Britain to sign a new code of practice when consultations end in 12 weeks.
The new code was originally due to be published in April.
"Banks that don't sign up to the code are likely to see active involvement from Revenue and Customs (tax agency) in their tax affairs," said the source, who is familiar with the consultation documents.
Under the new code, banks will have to put in place a formal policy and governance process for taxation, with accountability resting with the board of directors.
They will also have to commit to a more "open and transparent" relationship with tax authorities and ensure that compensation packages for bank employees are structured so tax is paid, the source said. (Reporting by Sumeet Desai; Editing by David Cowell)