Although density functional theory (DFT) is the method of choice for computational studies of the properties of metal oxides, there are a number of important systems where it fails to give a proper description of the atomic and electronic structure. These are structures which are doped or have anion vacancies and are experimentally determined to have strongly localised (hole) states, which are coupled to strong structural distortions. We have investigated the problem of oxygen hole states at the (1 0 0) surface of lithium doped MgO and show that the generalised gradient approximation of DFT results in delocalisation of the electronic states and an incorrect description of the geometry. This occurs because of the failure of DFT to cancel the electron self-interaction. The GGA + U method is one way of correcting for this problem and is applied in the present work. We consider a dopant atom in the surface layer and in a subsurface layer. For both dopant atom positions, we find a strongly distorted geometry, with the surface doped structure in best agreement with experiment, while the calculated formation energies also demonstrate that the surface dopant position is most stable. Additionally, we find strong localisation of the hole density on the oxygen atom and the excess spin density. As part of the catalytic process, we consider the energetics of hydrogen abstraction from methane with Li-doped MgO.