Yes, we have this system. We have classes for R/Y1, Y1/2, Y3/4, Y5/6.
I only have experience from Y2 onwards, but I would say it works very well.
ds is currently in Y4. For subjects such as Geography/History/Science etc the teachers operate a two year revolving programme, so that the whole class learn together. They just do the projects in a different order, depending on which year they start in, but at the end of the two years they have all achieved the same results. For example, its not really important whether they study Tudor before Romans as long as they cover it all in the end.
We are quite a large school, so there are three Y3/4 classes and three Y5/6 classes, so for literacy and numeracy they get split according to ability, so there is a Y3 group, a Y4 group and a Y3/4 group for those who are mid range. This is good as it means that if your child is really bright, they can be moved up a year or, if they are a bit behind, they can stay in a lower group until they are a bit more confident. The whole school does numeracy and literacy at the same time, so that a bright child in a Y4 class can join the Y5 class etc.
I think this is a really good set up and all the children seem to thrive on it. It means they have friends in year groups other than their own and, as a whole, they all get on really well together.