No APFS on the internal drive is fine...
Types of disks you can use with Time Machine on Mac
You can use Time Machine with a Time Capsule, and with USB, FireWire, and Thunderbolt disks. The disk can be directly connected to your Mac or be on a network. If a disk has partitions, you can use one of the partitions for your backup disk.
Time Machine can’t back up to iPhone, iPad, or iPod or to a disk formatted for Windows. If you connect a disk formatted for Windows, it can be reformatted (permanently removing all data) to a Mac format and used as a backup disk.
The most common format for a Time Machine backup disk is Mac OS Extended (Journaled) format, but Time Machine also supports Mac OS Extended (Case-sensitive, Journaled) and Xsan formats.
Important: You can back up from an HFS+ or APFS-formatted disk to an HFS+ disk; however, Time Machine can’t back up to an APFS-formatted disk. If you select a back up disk formatted as APFS, Time Machine offers to reformat it as HFS+.
If the disk uses the Master Boot Record (MBR) partition type, some partitions may not be available for use with Time Machine.
If your backup disk is on a network, the network server can use Server Message Block (SMB) file sharing. Your Mac must be connected to the SMB server when you set up Time Machine. After you select the network disk in Time Machine preferences, Time Machine automatically connects to the disk when it’s time to back up or restore your data.
Note: Some SMB and AFP disks from manufacturers other than Apple don’t support Time Machine. If your network uses an SMB or AFP disk, but the disk doesn’t appear in the list of devices available for Time Machine backups, contact the disk’s manufacturer.
https://support.apple.com/guide/mac-help/types-of-disks-you-can-use-with-time-machine-mh15139/mac
Time Machine Can’t Use APFS Directly
APFS doesn’t support hard links to directories, and Time Machine depends upon them. These are directory entries that associate a name with a directory or file on a system. The term usually applies to file systems that allow more than one hard link for the same file or directory. In the case of APFS, your Mac automatically converts any directory hard links you may have to symbolic links as you transition to the new file system.
This has a huge impact on Time Machine, which depends upon these directory hard links to work its magic. When Time Machine makes its first backup, it copies everything and then makes a dated folder, where it places hard links to the files it’s already backed up. The second backup uses more hard links for unchanged files, copying new or modified files into the dated folder for that second and each successive backup.
The fact that Apple’s new file system doesn’t support hard links to directories means you can’t use an APFS-formatted disk as your Time Machine backup drive. If you attempt it, Time Machine will automatically convert the volume back to HFS+ and use the drive that way.
https://support.apple.com/en-gb/HT208018